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 see whether NeoGenomics, Inc. (NASDAQ:NEO) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
NeoGenomics, Inc. (NASDAQ:NEO) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that NEO 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).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely 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 we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a look at the key hedge fund action encompassing NeoGenomics, Inc. (NASDAQ:NEO).
How are hedge funds trading NeoGenomics, Inc. (NASDAQ:NEO)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NEO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Driehaus Capital, managed by Richard Driehaus, holds the largest position in NeoGenomics, Inc. (NASDAQ:NEO). Driehaus Capital has a $20.3 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Chuck Royce of Royce & Associates, with a $7.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism consist of Christiana Goh Bardon’s Burrage Capital Management, Ken Griffin’s Citadel Investment Group and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Burrage Capital Management allocated the biggest weight to NeoGenomics, Inc. (NASDAQ:NEO), around 3.89% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.54 percent of its 13F equity portfolio to NEO.
Judging by the fact that NeoGenomics, Inc. (NASDAQ:NEO) has witnessed declining sentiment from the smart money, we can see that there is a sect of funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth about $4.2 million in stock. Renaissance Technologies, also dumped its stock, about $2.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to NeoGenomics, Inc. (NASDAQ:NEO). We will take a look at South Jersey Industries Inc (NYSE:SJI), Atlantic Union Bankshares Corporation (NASDAQ:AUB), Medpace Holdings, Inc. (NASDAQ:MEDP), and Cathay General Bancorp (NASDAQ:CATY). This group of stocks’ market valuations resemble NEO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SJI | 18 | 141726 | 4 |
| AUB | 8 | 20327 | 5 |
| MEDP | 17 | 202891 | -5 |
| CATY | 14 | 22947 | -4 |
| Average | 14.25 | 96973 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $49 million in NEO’s case. South Jersey Industries Inc (NYSE:SJI) is the most popular stock in this table. On the other hand Atlantic Union Bankshares Corporation (NASDAQ:AUB) is the least popular one with only 8 bullish hedge fund positions. NeoGenomics, Inc. (NASDAQ:NEO) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on NEO as the stock returned -9.8% during the same time period and outperformed the market by an even larger margin.
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.
