Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Zynex, Inc. (NASDAQ:ZYXI).
Is Zynex, Inc. (NASDAQ:ZYXI) undervalued? Hedge funds are betting on the stock. The number of long hedge fund positions moved up by 3 in recent months. Our calculations also showed that ZYXI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ZYXI was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with ZYXI positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s analyze the key hedge fund action surrounding Zynex, Inc. (NASDAQ:ZYXI).
What does smart money think about Zynex, Inc. (NASDAQ:ZYXI)?
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in ZYXI a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Driehaus Capital was the largest shareholder of Zynex, Inc. (NASDAQ:ZYXI), with a stake worth $4 million reported as of the end of September. Trailing Driehaus Capital was Arrowstreet Capital, which amassed a stake valued at $1.9 million. Winton Capital Management, AQR Capital Management, and ExodusPoint Capital 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 Driehaus Capital allocated the biggest weight to Zynex, Inc. (NASDAQ:ZYXI), around 0.13% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to ZYXI.
As aggregate interest increased, some big names were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the biggest position in Zynex, Inc. (NASDAQ:ZYXI). Driehaus Capital had $4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, Michael Gelband’s ExodusPoint Capital, and Israel Englander’s Millennium Management.
Let’s check out hedge fund activity in other stocks similar to Zynex, Inc. (NASDAQ:ZYXI). We will take a look at Gritstone Oncology, Inc. (NASDAQ:GRTS), Braemar Hotels & Resorts Inc. (NYSE:BHR), Castle Biosciences, Inc. (NASDAQ:CSTL), and Green Plains Partners LP (NASDAQ:GPP). This group of stocks’ market values match ZYXI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRTS | 8 | 67140 | 0 |
| BHR | 13 | 55948 | -2 |
| CSTL | 12 | 38901 | 12 |
| GPP | 2 | 3131 | 0 |
| Average | 8.75 | 41280 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $7 million in ZYXI’s case. Braemar Hotels & Resorts Inc. (NYSE:BHR) is the most popular stock in this table. On the other hand Green Plains Partners LP (NASDAQ:GPP) is the least popular one with only 2 bullish hedge fund positions. Zynex, Inc. (NASDAQ:ZYXI) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on ZYXI, though not to the same extent, as the stock returned 10.4% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.