Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about 22nd Century Group, Inc (NYSE:XXII).
22nd Century Group, Inc (NYSE:XXII) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. XXII has seen a decrease in enthusiasm from smart money of late. There were 8 hedge funds in our database with XXII positions at the end of the second quarter. Our calculations also showed that XXII isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Ken Griffin of Citadel Investment Group
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s view the recent hedge fund action surrounding 22nd Century Group, Inc (NYSE:XXII).
What have hedge funds been doing with 22nd Century Group, Inc (NYSE:XXII)?
At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -50% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in XXII a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Millennium Management, managed by Israel Englander, holds the largest position in 22nd Century Group, Inc (NYSE:XXII). Millennium Management has a $0.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $0.1 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to 22nd Century Group, Inc (NYSE:XXII), around 0.0006% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0004 percent of its 13F equity portfolio to XXII.
Because 22nd Century Group, Inc (NYSE:XXII) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds that slashed their positions entirely in the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners dropped the largest investment of all the hedgies monitored by Insider Monkey, valued at close to $0.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $0 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to 22nd Century Group, Inc (NYSE:XXII). These stocks are Provident Financial Holdings, Inc. (NASDAQ:PROV), Townsquare Media Inc (NYSE:TSQ), Luby’s, Inc. (NYSE:LUB), Pacific Mercantile Bancorp (NASDAQ:PMBC), Sachem Capital Corp. (NYSE:SACH), BG Staffing Inc (NYSE:BGSF), and Immutep Limited (NASDAQ:IMMP). This group of stocks’ market values match XXII’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PROV | 1 | 4802 | 0 |
| TSQ | 6 | 19036 | 0 |
| LUB | 5 | 9572 | 1 |
| PMBC | 6 | 17474 | -2 |
| SACH | 1 | 153 | -1 |
| BGSF | 8 | 3378 | 3 |
| IMMP | 1 | 66 | 0 |
| Average | 4 | 7783 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $1 million in XXII’s case. BG Staffing Inc (NYSE:BGSF) is the most popular stock in this table. On the other hand Provident Financial Holdings, Inc. (NASDAQ:PROV) is the least popular one with only 1 bullish hedge fund positions. 22nd Century Group, Inc (NYSE:XXII) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XXII is 37.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on XXII as the stock returned 149.6% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.