We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is AEterna Zentaris Inc. (NASDAQ:AEZS) ready to rally soon? The best stock pickers are taking a bullish view. The number of long hedge fund positions moved up by 1 recently. Our calculations also showed that AEZS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AEZS was in 5 hedge funds’ portfolios at the end of September. There were 4 hedge funds in our database with AEZS positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the latest hedge fund action encompassing AEterna Zentaris Inc. (NASDAQ:AEZS).
How have hedgies been trading AEterna Zentaris Inc. (NASDAQ:AEZS)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AEZS over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Armistice Capital was the largest shareholder of AEterna Zentaris Inc. (NASDAQ:AEZS), with a stake worth $0.5 million reported as of the end of September. Trailing Armistice Capital was Renaissance Technologies, which amassed a stake valued at $0.1 million. Sabby Capital, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sabby Capital allocated the biggest weight to AEterna Zentaris Inc. (NASDAQ:AEZS), around 0.04% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to AEZS.
Consequently, specific money managers were leading the bulls’ herd. Armistice Capital, managed by Steven Boyd, established the most valuable position in AEterna Zentaris Inc. (NASDAQ:AEZS). Armistice Capital had $0.5 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks similar to AEterna Zentaris Inc. (NASDAQ:AEZS). These stocks are Natuzzi, S.p.A (NYSE:NTZ), FARMMI, INC. (NASDAQ:FAMI), eMagin Corporation (NYSE:EMAN), and Cellectar Biosciences, Inc. (NASDAQ:CLRB). This group of stocks’ market valuations match AEZS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTZ | 1 | 319 | 0 |
| FAMI | 1 | 285 | 0 |
| EMAN | 2 | 73 | -1 |
| CLRB | 2 | 825 | -1 |
| Average | 1.5 | 376 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $1 million in AEZS’s case. eMagin Corporation (NYSE:EMAN) is the most popular stock in this table. On the other hand Natuzzi, S.p.A (NYSE:NTZ) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks AEterna Zentaris Inc. (NASDAQ:AEZS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AEZS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AEZS were disappointed as the stock returned -12.6% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
