How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MEI Pharma Inc (NASDAQ:MEIP) and determine whether hedge funds had an edge regarding this stock.
Is MEI Pharma Inc (NASDAQ:MEIP) a buy here? Hedge funds were becoming more confident. The number of long hedge fund bets rose by 6 recently. MEI Pharma Inc (NASDAQ:MEIP) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MEIP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 14 hedge funds in our database with MEIP positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are tons of tools stock market investors have at their disposal to size up publicly traded companies. Two of the most innovative tools are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite money managers can trounce the market by a very impressive amount (see the details here).
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox.With all of this in mind we’re going to take a look at the key hedge fund action regarding MEI Pharma Inc (NASDAQ:MEIP).
What have hedge funds been doing with MEI Pharma Inc (NASDAQ:MEIP)?
Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in MEIP a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Biotechnology Value Fund / BVF Inc held the most valuable stake in MEI Pharma Inc (NASDAQ:MEIP), which was worth $17.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $13.7 million worth of shares. Burrage Capital Management, Citadel Investment Group, and Opaleye 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 Burrage Capital Management allocated the biggest weight to MEI Pharma Inc (NASDAQ:MEIP), around 8.67% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, designating 1.3 percent of its 13F equity portfolio to MEIP.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Opaleye Management, managed by James A. Silverman, established the most valuable position in MEI Pharma Inc (NASDAQ:MEIP). Opaleye Management had $6.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $4.8 million investment in the stock during the quarter. The following funds were also among the new MEIP investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund, and Parvinder Thiara’s Athanor Capital.
Let’s check out hedge fund activity in other stocks similar to MEI Pharma Inc (NASDAQ:MEIP). These stocks are American Public Education, Inc. (NASDAQ:APEI), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Establishment Labs Holdings Inc. (NASDAQ:ESTA), Boston Omaha Corporation (NASDAQ:BOMN), NeoPhotonics Corp (NYSE:NPTN), Century Bancorp, Inc. (NASDAQ:CNBKA), and Teekay Tankers Ltd. (NYSE:TNK). This group of stocks’ market valuations resemble MEIP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APEI | 16 | 75539 | 3 |
| BDSI | 26 | 112350 | -1 |
| ESTA | 11 | 78982 | -3 |
| BOMN | 12 | 171784 | 7 |
| NPTN | 23 | 75501 | -1 |
| CNBKA | 3 | 17275 | -1 |
| TNK | 17 | 29045 | -4 |
| Average | 15.4 | 80068 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $83 million in MEIP’s case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 3 bullish hedge fund positions. MEI Pharma Inc (NASDAQ:MEIP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MEIP is 40. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately MEIP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MEIP were disappointed as the stock returned -24.5% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
