Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Tesaro Inc (NASDAQ:TSRO) from the perspective of those elite funds.
Is Tesaro Inc (NASDAQ:TSRO) a healthy stock for your portfolio? The best stock pickers are taking a bearish view. The number of long hedge fund positions went down by 4 in recent months. Our calculations also showed that TSRO isn’t among the 30 most popular stocks among hedge funds. TSRO was in 20 hedge funds’ portfolios at the end of September. There were 24 hedge funds in our database with TSRO positions at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the recent hedge fund action regarding Tesaro Inc (NASDAQ:TSRO).
What have hedge funds been doing with Tesaro Inc (NASDAQ:TSRO)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in TSRO heading into this year. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Tesaro Inc (NASDAQ:TSRO) was held by Camber Capital Management, which reported holding $136.5 million worth of stock at the end of September. It was followed by Millennium Management with a $60.9 million position. Other investors bullish on the company included Cormorant Asset Management, Balyasny Asset Management, and Rock Springs Capital Management.
Because Tesaro Inc (NASDAQ:TSRO) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of funds that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Ori Hershkovitz’s Nexthera Capital dropped the biggest position of the 700 funds followed by Insider Monkey, totaling close to $19.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $16 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Tesaro Inc (NASDAQ:TSRO) but similarly valued. We will take a look at Varonis Systems Inc (NASDAQ:VRNS), Covanta Holding Corporation (NYSE:CVA), Medpace Holdings, Inc. (NASDAQ:MEDP), and Travelport Worldwide Ltd (NYSE:TVPT). All of these stocks’ market caps are similar to TSRO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRNS | 22 | 153158 | -4 |
| CVA | 19 | 104819 | 5 |
| MEDP | 26 | 286235 | 8 |
| TVPT | 23 | 253987 | 1 |
| Average | 22.5 | 199550 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $375 million in TSRO’s case. Medpace Holdings, Inc. (NASDAQ:MEDP) is the most popular stock in this table. On the other hand Covanta Holding Corporation (NYSE:CVA) is the least popular one with only 19 bullish hedge fund positions. Tesaro Inc (NASDAQ:TSRO) 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. In this regard MEDP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
