Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Genomic Health, Inc. (NASDAQ:GHDX) a bargain? The smart money is getting more bullish. The number of bullish hedge fund positions inched up by 1 lately. Our calculations also showed that GHDX isn’t among the 30 most popular stocks among hedge funds. GHDX was in 25 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with GHDX positions at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the recent hedge fund action encompassing Genomic Health, Inc. (NASDAQ:GHDX).
How have hedgies been trading Genomic Health, Inc. (NASDAQ:GHDX)?
Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2018. On the other hand, there were a total of 15 hedge funds with a bullish position in GHDX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Genomic Health, Inc. (NASDAQ:GHDX) was held by Baker Bros. Advisors, which reported holding $714.4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $166.7 million position. Other investors bullish on the company included GLG Partners, Millennium Management, and AQR Capital Management.
Now, key hedge funds were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, assembled the biggest position in Genomic Health, Inc. (NASDAQ:GHDX). Laurion Capital Management had $1.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.7 million position during the quarter. The following funds were also among the new GHDX investors: Bruce Kovner’s Caxton Associates LP and George Zweig, Shane Haas and Ravi Chander’s Signition LP.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Genomic Health, Inc. (NASDAQ:GHDX) but similarly valued. We will take a look at Quidel Corporation (NASDAQ:QDEL), Sunoco LP (NYSE:SUN), Colony Capital Inc (NYSE:CLNY), and Ligand Pharmaceuticals Inc. (NASDAQ:LGND). This group of stocks’ market valuations resemble GHDX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QDEL | 18 | 119938 | 2 |
| SUN | 7 | 20219 | 0 |
| CLNY | 23 | 380794 | -3 |
| LGND | 23 | 445210 | -1 |
| Average | 17.75 | 241540 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $1055 million in GHDX’s case. Colony Capital Inc (NYSE:CLNY) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Genomic Health, Inc. (NASDAQ:GHDX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately GHDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GHDX were disappointed as the stock returned -24.3% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
