Is Black Diamond Therapeutics, Inc. (BDTX) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Black Diamond Therapeutics, Inc. (NASDAQ:BDTX).

Black Diamond Therapeutics, Inc. (NASDAQ:BDTX) shareholders have witnessed a decrease in enthusiasm from smart money lately. Black Diamond Therapeutics, Inc. (NASDAQ:BDTX) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 18. Our calculations also showed that BDTX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to go over the fresh hedge fund action regarding Black Diamond Therapeutics, Inc. (NASDAQ:BDTX).

Do Hedge Funds Think BDTX Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -41% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BDTX over the last 24 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Black Diamond Therapeutics, Inc. (NASDAQ:BDTX) was held by RA Capital Management, which reported holding $31.6 million worth of stock at the end of June. It was followed by Deerfield Management with a $12.8 million position. Other investors bullish on the company included Millennium Management, Ikarian Capital, and PDT Partners. In terms of the portfolio weights assigned to each position Burrage Capital Management allocated the biggest weight to Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), around 1.35% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to BDTX.

Judging by the fact that Black Diamond Therapeutics, Inc. (NASDAQ:BDTX) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers who were dropping their entire stakes heading into Q3. Intriguingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $13.4 million in stock, and Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) was right behind this move, as the fund sold off about $10.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Black Diamond Therapeutics, Inc. (NASDAQ:BDTX). These stocks are Farmers National Banc Corp (NASDAQ:FMNB), Molecular Templates, Inc. (NASDAQ:MTEM), Falcon Minerals Corporation (NASDAQ:FLMN), Ooma Inc (NYSE:OOMA), Equity Bancshares, Inc. (NASDAQ:EQBK), Safe Bulkers, Inc. (NYSE:SB), and Amryt Pharma plc (NASDAQ:AMYT). All of these stocks’ market caps are similar to BDTX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $55 million in BDTX’s case. Falcon Minerals Corporation (NASDAQ:FLMN) is the most popular stock in this table. On the other hand Equity Bancshares, Inc. (NASDAQ:EQBK) is the least popular one with only 7 bullish hedge fund positions. Black Diamond Therapeutics, Inc. (NASDAQ:BDTX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BDTX is 23. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately BDTX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BDTX investors were disappointed as the stock returned -19.9% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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