“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Silk Road Medical, Inc. (NASDAQ:SILK) and see how it was affected.
Is Silk Road Medical, Inc. (NASDAQ:SILK) a buy right now? Money managers are becoming more confident. The number of bullish hedge fund bets moved up by 11 in recent months. Our calculations also showed that SILK isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action encompassing Silk Road Medical, Inc. (NASDAQ:SILK).
How are hedge funds trading Silk Road Medical, Inc. (NASDAQ:SILK)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11 from the first quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in SILK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Deerfield Management, managed by James E. Flynn, holds the most valuable position in Silk Road Medical, Inc. (NASDAQ:SILK). Deerfield Management has a $24.2 million position in the stock, comprising 0.9% of its 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $14 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Anand Parekh’s Alyeska Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and Benjamin A. Smith’s Laurion Capital Management.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Silk Road Medical, Inc. (NASDAQ:SILK) headfirst. Deerfield Management, managed by James E. Flynn, initiated the most valuable position in Silk Road Medical, Inc. (NASDAQ:SILK). Deerfield Management had $24.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $14 million position during the quarter. The following funds were also among the new SILK investors: Anand Parekh’s Alyeska Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Silk Road Medical, Inc. (NASDAQ:SILK). These stocks are Shutterstock Inc (NYSE:SSTK), Turning Point Therapeutics, Inc. (NASDAQ:TPTX), GreenTree Hospitality Group Ltd. (NYSE:GHG), and Mobile Mini Inc (NASDAQ:MINI). This group of stocks’ market caps are similar to SILK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSTK | 18 | 89013 | 1 |
| TPTX | 15 | 323179 | 15 |
| GHG | 5 | 31776 | -4 |
| MINI | 15 | 91898 | 1 |
| Average | 13.25 | 133967 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $66 million in SILK’s case. Shutterstock Inc (NYSE:SSTK) is the most popular stock in this table. On the other hand GreenTree Hospitality Group Ltd. (NYSE:GHG) is the least popular one with only 5 bullish hedge fund positions. Silk Road Medical, Inc. (NASDAQ:SILK) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SILK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SILK investors were disappointed as the stock returned -32.9% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.