Inogen Inc (INGN): Are Hedge Funds Right About This Stock?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Inogen Inc (NASDAQ:INGN) and determine whether hedge funds skillfully traded this stock.

Inogen Inc (NASDAQ:INGN) was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. INGN shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. There were 21 hedge funds in our database with INGN holdings at the end of the previous quarter. Our calculations also showed that INGN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.

Sahm Adrangi of Kerrisdale Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the recent hedge fund action encompassing Inogen Inc (NASDAQ:INGN).

Hedge fund activity in Inogen Inc (NASDAQ:INGN)

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INGN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Two Sigma Advisors held the most valuable stake in Inogen Inc (NASDAQ:INGN), which was worth $15.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $12 million worth of shares. Renaissance Technologies, AQR Capital Management, and Balyasny Asset Management 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 DAFNA Capital Management allocated the biggest weight to Inogen Inc (NASDAQ:INGN), around 0.5% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to INGN.

Because Inogen Inc (NASDAQ:INGN) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who sold off their positions entirely by the end of the first quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, totaling an estimated $12.4 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund cut about $9.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 9 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Inogen Inc (NASDAQ:INGN). These stocks are DHT Holdings Inc (NYSE:DHT), Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), Eldorado Resorts Inc (NASDAQ:ERI), and Enable Midstream Partners LP (NYSE:ENBL). This group of stocks’ market values are similar to INGN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $60 million in INGN’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. Inogen Inc (NASDAQ:INGN) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately INGN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INGN investors were disappointed as the stock returned -31.2% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.