How do we determine whether Check-Cap Ltd. (NASDAQ:CHEK) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Check-Cap Ltd. (NASDAQ:CHEK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as My Size, Inc. (NASDAQ:MYSZ), Eltek Ltd. (NASDAQ:ELTK), and aTyr Pharma, Inc. (NASDAQ:LIFE) to gather more data points. Our calculations also showed that CHEK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a gander at the latest hedge fund action encompassing Check-Cap Ltd. (NASDAQ:CHEK).
What have hedge funds been doing with Check-Cap Ltd. (NASDAQ:CHEK)?
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in CHEK a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the most valuable position in Check-Cap Ltd. (NASDAQ:CHEK), worth close to $0.6 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Dorset Management, managed by David M. Knott, which holds a $0.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Nick Thakore’s Diametric Capital, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and . In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Check-Cap Ltd. (NASDAQ:CHEK), around 0.2% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to CHEK.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Check-Cap Ltd. (NASDAQ:CHEK) but similarly valued. These stocks are My Size, Inc. (NASDAQ:MYSZ), Eltek Ltd. (NASDAQ:ELTK), aTyr Pharma, Inc. (NASDAQ:LIFE), and Achieve Life Sciences, Inc. (NASDAQ:ACHV). This group of stocks’ market caps resemble CHEK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MYSZ | 1 | 21 | 0 |
| ELTK | 1 | 75 | 0 |
| LIFE | 2 | 1480 | -1 |
| ACHV | 2 | 1299 | -1 |
| Average | 1.5 | 719 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in CHEK’s case. aTyr Pharma, Inc. (NASDAQ:LIFE) is the most popular stock in this table. On the other hand My Size, Inc. (NASDAQ:MYSZ) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Check-Cap Ltd. (NASDAQ:CHEK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHEK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CHEK were disappointed as the stock returned -28.7% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
