We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Kodiak Sciences Inc (NASDAQ:KOD) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Kodiak Sciences Inc (NASDAQ:KOD) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. KOD shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 7 hedge funds in our database with KOD positions at the end of the previous quarter. Our calculations also showed that KOD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In today’s marketplace there are tons of gauges market participants employ to value publicly traded companies. A pair of the less known gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the best investment managers can outpace the S&P 500 by a superb margin (see the details here).
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the new hedge fund action encompassing Kodiak Sciences Inc (NASDAQ:KOD).
How have hedgies been trading Kodiak Sciences Inc (NASDAQ:KOD)?
At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 57% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in KOD a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Baker Bros. Advisors held the most valuable stake in Kodiak Sciences Inc (NASDAQ:KOD), which was worth $794.9 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $263.6 million worth of shares. Renaissance Technologies, Millennium Management, and Deerfield Management 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 Perceptive Advisors allocated the biggest weight to Kodiak Sciences Inc (NASDAQ:KOD), around 5.24% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, setting aside 4.23 percent of its 13F equity portfolio to KOD.
Consequently, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, established the largest position in Kodiak Sciences Inc (NASDAQ:KOD). Millennium Management had $14.9 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also made a $14.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Martinez’s Parkman Healthcare Partners, D. E. Shaw’s D E Shaw, and Matthew L Pinz’s Pinz Capital.
Let’s now review hedge fund activity in other stocks similar to Kodiak Sciences Inc (NASDAQ:KOD). These stocks are Farfetch Limited (NYSE:FTCH), Stantec Inc. (NYSE:STN), Barnes Group Inc. (NYSE:B), and Cedar Fair, L.P. (NYSE:FUN). This group of stocks’ market valuations are closest to KOD’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTCH | 27 | 492622 | 5 |
| STN | 9 | 91998 | 2 |
| B | 11 | 26705 | -5 |
| FUN | 9 | 80652 | -4 |
| Average | 14 | 172994 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $1147 million in KOD’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 9 bullish hedge fund positions. Kodiak Sciences Inc (NASDAQ:KOD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately KOD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KOD investors were disappointed as the stock returned -34.8% during the same time 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
