Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Aldeyra Therapeutics Inc (NASDAQ:ALDX) a first-rate investment right now? Prominent investors are becoming more confident. The number of long hedge fund bets rose by 1 lately. Our calculations also showed that aldx isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the latest hedge fund action regarding Aldeyra Therapeutics Inc (NASDAQ:ALDX).
What have hedge funds been doing with Aldeyra Therapeutics Inc (NASDAQ:ALDX)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in ALDX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Perceptive Advisors was the largest shareholder of Aldeyra Therapeutics Inc (NASDAQ:ALDX), with a stake worth $27.9 million reported as of the end of March. Trailing Perceptive Advisors was 683 Capital Partners, which amassed a stake valued at $16.3 million. Adage Capital Management, Prosight Capital, and Knoll Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key money managers were breaking ground themselves. Prosight Capital, managed by Lawrence Hawkins, initiated the most valuable call position in Aldeyra Therapeutics Inc (NASDAQ:ALDX). Prosight Capital had $1.5 million invested in the company at the end of the quarter. Phil Frohlich’s Prescott Group Capital Management also initiated a $0.9 million position during the quarter. The following funds were also among the new ALDX investors: Ken Griffin’s Citadel Investment Group, Mike Vranos’s Ellington, and David Harding’s Winton Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Aldeyra Therapeutics Inc (NASDAQ:ALDX). These stocks are BlueLinx Holdings Inc. (NYSE:BXC), Cutera, Inc. (NASDAQ:CUTR), BayCom Corp (NASDAQ:BCML), and Aclaris Therapeutics, Inc. (NASDAQ:ACRS). This group of stocks’ market values resemble ALDX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BXC | 11 | 82781 | 0 |
| CUTR | 14 | 55269 | -3 |
| BCML | 4 | 21871 | 0 |
| ACRS | 16 | 105972 | -1 |
| Average | 11.25 | 66473 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $70 million in ALDX’s case. Aclaris Therapeutics, Inc. (NASDAQ:ACRS) is the most popular stock in this table. On the other hand BayCom Corp (NASDAQ:BCML) is the least popular one with only 4 bullish hedge fund positions. Aldeyra Therapeutics Inc (NASDAQ:ALDX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ALDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALDX were disappointed as the stock returned -21.7% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
