Is Pfenex Inc (NYSE:PFNX) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Pfenex Inc (NYSE:PFNX) has seen an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that PFNX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Steven Cohen of Point72 Asset Management
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a glance at the new hedge fund action surrounding Pfenex Inc (NYSE:PFNX).
How have hedgies been trading Pfenex Inc (NYSE:PFNX)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in PFNX a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Pfenex Inc (NYSE:PFNX), which was worth $12.9 million at the end of the third quarter. On the second spot was Park West Asset Management which amassed $7.5 million worth of shares. Farallon Capital, Royce & Associates, and Millennium 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 Sio Capital allocated the biggest weight to Pfenex Inc (NYSE:PFNX), around 0.53% of its 13F portfolio. Park West Asset Management is also relatively very bullish on the stock, earmarking 0.36 percent of its 13F equity portfolio to PFNX.
Consequently, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Pfenex Inc (NYSE:PFNX). Point72 Asset Management had $0.6 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is David E. Shaw’s D E Shaw.
Let’s now take a look at hedge fund activity in other stocks similar to Pfenex Inc (NYSE:PFNX). We will take a look at RR Donnelley & Sons Company (NYSE:RRD), Denison Mines Corp (NYSE:DNN), Scholar Rock Holding Corporation (NASDAQ:SRRK), and Covia Holdings Corporation (NYSE:CVIA). All of these stocks’ market caps are closest to PFNX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RRD | 15 | 15735 | 3 |
| DNN | 3 | 1431 | -1 |
| SRRK | 7 | 29330 | -1 |
| CVIA | 8 | 15347 | 1 |
| Average | 8.25 | 15461 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $36 million in PFNX’s case. RR Donnelley & Sons Company (NYSE:RRD) is the most popular stock in this table. On the other hand Denison Mines Corp (NYSE:DNN) is the least popular one with only 3 bullish hedge fund positions. Pfenex Inc (NYSE:PFNX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on PFNX as the stock returned 23% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
