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MELA Sciences Inc (NASDAQ:MELA) has experienced a decrease in hedge fund sentiment of late. MELA was in 4 hedge funds’ portfolios at the end of September. There were 5 hedge funds in our database with MELA holdings at the end of the previous quarter. 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 Wave Systems Corp. (NASDAQ:WAVX), Essex Rental Corp. (NASDAQ:ESSX), and Hooper Holmes, Inc. (NYSEMKT:HH) to gather more data points.
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Keeping this in mind, we’re going to analyze the recent action encompassing MELA Sciences Inc (NASDAQ:MELA).
What have hedge funds been doing with MELA Sciences Inc (NASDAQ:MELA)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Broadfin Capital, managed by Kevin Kotler, holds the number one position in MELA Sciences Inc (NASDAQ:MELA). Broadfin Capital has a $1.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Hal Mintz of Sabby Capital, with a $0.8 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, Paul Orlin and Alex Porter’s Amici Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified MELA as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks similar to MELA Sciences Inc (NASDAQ:MELA). We will take a look at Wave Systems Corp. (NASDAQ:WAVX), Essex Rental Corp. (NASDAQ:ESSX), Hooper Holmes, Inc. (NYSEMKT:HH), and RLJ Entertainment Inc (NASDAQ:RLJE). This group of stocks’ market values are similar to MELA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAVX | 4 | 131 | 2 |
| ESSX | 5 | 453 | -1 |
| HH | 5 | 1378 | 1 |
| RLJE | 4 | 697 | 0 |
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $2 million in MELA’s case. Essex Rental Corp. (NASDAQ:ESSX) is the most popular stock in this table. On the other hand Wave Systems Corp. (NASDAQ:WAVX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks MELA Sciences Inc (NASDAQ:MELA) is as less popular as WAVX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
