Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Nantkwest Inc (NASDAQ:NK) ready to rally soon? NK was in 5 hedge funds’ portfolios at the end of September, while its stock started trading in July. 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 PIMCO Corporate&Income Opportunity Fund (NYSE:PTY), Stepan Company (NYSE:SCL), and Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO) to gather more data points.
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In the 21st century investor’s toolkit there are several signals market participants use to analyze publicly traded companies. A duo of the best signals are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the top money managers can trounce the market by a significant margin (see the details here).
Keeping this in mind, let’s take a glance at the latest action regarding Nantkwest Inc (NASDAQ:NK).
What have hedge funds been doing with Nantkwest Inc (NASDAQ:NK)?
Of the funds tracked by Insider Monkey, Leonard A. Potter’s Wildcat Capital Management has the largest position in Nantkwest Inc (NASDAQ:NK), worth close to $51.5 million, amounting to 19.2% of its total 13F portfolio. On Wildcat Capital Management’s heels is venBio Select Advisor, led by Behzad Aghazadeh, holding a $7.3 million position; 1.9% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Ken Griffin’s Citadel Investment Group, Sander Gerber’s Hudson Bay Capital Management and Anand Parekh’s Alyeska Investment Group.
Let’s now take a look at hedge fund activity in other stocks similar to Nantkwest Inc (NASDAQ:NK). We will take a look at PIMCO Corporate&Income Opportunity Fund (NYSE:PTY), Stepan Company (NYSE:SCL), Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO), and Ameris Bancorp (NASDAQ:ABCB). This group of stocks’ market valuations match NK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTY | 5 | 1060 | 1 |
| SCL | 14 | 40452 | -3 |
| SIMO | 20 | 113297 | -1 |
| ABCB | 18 | 77992 | -1 |
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $58 million, below the $61 million in NK’s case. Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO) is the most popular stock in this table, while PIMCO Corporate&Income Opportunity Fund (NYSE:PTY) is the least popular one with only 5 bullish hedge fund positions, the same as Nantkwest Inc (NASDAQ:NK). Considering that hedge funds aren’t fond of this stock in relation to other companies mentioned 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.