Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).
Is Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) going to take off soon? Hedge funds are in a pessimistic mood. The number of long hedge fund bets shrunk by 1 in recent months. Our calculations also showed that DCPH isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most traders, hedge funds are viewed as underperforming, old financial vehicles of years past. While there are more than 8,000 funds trading at the moment, We choose to focus on the masters of this group, about 700 funds. It is estimated that this group of investors administer most of the hedge fund industry’s total asset base, and by shadowing their first-class picks, Insider Monkey has revealed several investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by 6 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
We’re going to take a look at the recent hedge fund action encompassing Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).
What have hedge funds been doing with Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH)?
Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in DCPH heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, OrbiMed Advisors was the largest shareholder of Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), with a stake worth $75.6 million reported as of the end of September. Trailing OrbiMed Advisors was Redmile Group, which amassed a stake valued at $57.2 million. Polar Capital, Viking Global, and Opaleye Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) has faced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of money managers that decided to sell off their positions entirely in the third quarter. Intriguingly, Zach Schreiber’s Point State Capital dropped the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $6.9 million in stock, and Leon Cooperman’s Omega Advisors was right behind this move, as the fund dumped about $4.7 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). These stocks are Gibraltar Industries Inc (NASDAQ:ROCK), Helix Energy Solutions Group Inc. (NYSE:HLX), Herc Holdings Inc. (NYSE:HRI), and Natera Inc (NASDAQ:NTRA). This group of stocks’ market caps match DCPH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROCK | 12 | 124889 | 1 |
| HLX | 16 | 59869 | -1 |
| HRI | 24 | 667633 | 1 |
| NTRA | 21 | 204485 | 7 |
| Average | 18.25 | 264219 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $257 million in DCPH’s case. Herc Holdings Inc. (NYSE:HRI) is the most popular stock in this table. On the other hand Gibraltar Industries Inc (NASDAQ:ROCK) is the least popular one with only 12 bullish hedge fund positions. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) 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. In this regard HRI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
