Is LUMO Stock A Buy?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was Lumos Pharma, Inc. (NASDAQ:LUMO).

Is LUMO stock a buy? Lumos Pharma, Inc. (NASDAQ:LUMO) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Lumos Pharma, Inc. (NASDAQ:LUMO) was in 4 hedge funds’ portfolios at the end of March. The all time high for this statistic is 19. Our calculations also showed that LUMO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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.

Didric Cederholm of Lion Point Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. Now we’re going to take a gander at the new hedge fund action surrounding Lumos Pharma, Inc. (NASDAQ:LUMO).

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

Heading into the second quarter of 2021, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -56% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LUMO over the last 23 quarters. So, let’s find out 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, Lion Point, managed by Didric Cederholm, holds the largest position in Lumos Pharma, Inc. (NASDAQ:LUMO). Lion Point has a $4.8 million position in the stock, comprising 0.9% of its 13F portfolio. Sitting at the No. 2 spot is Opaleye Management, managed by James A. Silverman, which holds a $4.4 million position; 0.6% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass James E. Flynn’s Deerfield Management, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to Lumos Pharma, Inc. (NASDAQ:LUMO), around 0.87% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, setting aside 0.65 percent of its 13F equity portfolio to LUMO.

Judging by the fact that Lumos Pharma, Inc. (NASDAQ:LUMO) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that slashed their full holdings heading into Q2. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, worth about $1.3 million in stock, and Ari Zweiman’s 683 Capital Partners was right behind this move, as the fund dropped about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q2.

Let’s go over hedge fund activity in other stocks similar to Lumos Pharma, Inc. (NASDAQ:LUMO). We will take a look at OpGen, Inc. (NASDAQ:OPGN), CLPS Incorporation (NASDAQ:CLPS), AstroNova, Inc. (NASDAQ:ALOT), HMN Financial, Inc. (NASDAQ:HMNF), Weidai Ltd. (NYSE:WEI), Martin Midstream Partners L.P. (NASDAQ:MMLP), and Yunhong International (NASDAQ:ZGYHU). This group of stocks’ market values resemble LUMO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.4 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $17 million in LUMO’s case. Yunhong International (NASDAQ:ZGYHU) is the most popular stock in this table. On the other hand Martin Midstream Partners L.P. (NASDAQ:MMLP) is the least popular one with only 1 bullish hedge fund positions. Lumos Pharma, Inc. (NASDAQ:LUMO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LUMO is 31.3. 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 positive signal but 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 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately LUMO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LUMO were disappointed as the stock returned -1.8% since the end of March (through 6/11) 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 many of these stocks already outperformed the market since 2019.

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