Is Mereo BioPharma Group plc (NASDAQ:MREO) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Mereo BioPharma Group plc (NASDAQ:MREO) 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 September. 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 Gridsum Holding Inc. (NASDAQ:GSUM), Full House Resorts, Inc. (NASDAQ:FLL), and Espey Manufacturing & Electronics Corp. (NYSE:ESP) to gather more data points. Our calculations also showed that MREO 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Keeping this in mind we’re going to analyze the new hedge fund action surrounding Mereo BioPharma Group plc (NASDAQ:MREO).
How are hedge funds trading Mereo BioPharma Group plc (NASDAQ:MREO)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in MREO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Mark Lampert’s Biotechnology Value Fund has the biggest position in Mereo BioPharma Group plc (NASDAQ:MREO), worth close to $1.5 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Perceptive Advisors, managed by Joseph Edelman, which holds a $0.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Renaissance Technologies, Matthew Strobeck’s Birchview Capital and . In terms of the portfolio weights assigned to each position Biotechnology Value Fund allocated the biggest weight to Mereo BioPharma Group plc (NASDAQ:MREO), around 0.16% of its 13F portfolio. Birchview Capital is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to MREO.
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 go over hedge fund activity in other stocks similar to Mereo BioPharma Group plc (NASDAQ:MREO). These stocks are Gridsum Holding Inc. (NASDAQ:GSUM), Full House Resorts, Inc. (NASDAQ:FLL), Espey Manufacturing & Electronics Corp. (NYSE:ESP), and Air T, Inc. (NASDAQ:AIRT). This group of stocks’ market values match MREO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSUM | 5 | 9525 | 1 |
| FLL | 6 | 7121 | 1 |
| ESP | 1 | 3487 | 0 |
| AIRT | 1 | 4038 | 0 |
| Average | 3.25 | 6043 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $3 million in MREO’s case. Full House Resorts, Inc. (NASDAQ:FLL) is the most popular stock in this table. On the other hand Espey Manufacturing & Electronics Corp. (NYSE:ESP) is the least popular one with only 1 bullish hedge fund positions. Mereo BioPharma Group plc (NASDAQ:MREO) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 MREO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MREO were disappointed as the stock returned -20.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.