Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Is Pfenex Inc (NYSEMKT:PFNX) a buy right now? Hedge funds are indeed in a pessimistic mood. The number of bullish hedge fund positions fell by 1 lately. PFNX was in 8 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with PFNX positions 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 EndoChoice Holdings Inc (NYSE:GI), Comtech Telecomm. Corp. (NASDAQ:CMTL), and Stemline Therapeutics Inc (NASDAQ:STML) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s take a gander at the fresh action regarding Pfenex Inc (NYSEMKT:PFNX).
Hedge fund activity in Pfenex Inc (NYSEMKT:PFNX)
Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in PFNX at the beginning of this year. So, let’s review 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, Joseph Edelman’s Perceptive Advisors has the largest position in Pfenex Inc (NYSEMKT:PFNX), worth close to $8.4 million, amounting to 0.5% of its total 13F portfolio. The second most bullish fund manager is Bihua Chen of Cormorant Asset Management, with a $5.7 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Renaissance Technologies, one of the largest hedge funds in the world, and Michael Castor’s Sio Capital. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PDT Partners. 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 PFNX as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pfenex Inc (NYSEMKT:PFNX) but similarly valued. These stocks are EndoChoice Holdings Inc (NYSE:GI), Comtech Telecomm. Corp. (NASDAQ:CMTL), Stemline Therapeutics Inc (NASDAQ:STML), and Medgenics Inc (NYSEMKT:MDGN). This group of stocks’ market valuations are similar to PFNX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GI | 8 | 11746 | 1 |
| CMTL | 11 | 42520 | -6 |
| STML | 11 | 11468 | 3 |
| MDGN | 9 | 51090 | -1 |
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $19 million in PFNX’s case. Comtech Telecomm. Corp. (NASDAQ:CMTL) is the most popular stock in this table. On the other hand EndoChoice Holdings Inc (NYSE:GI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Pfenex Inc (NYSEMKT:PFNX) is even less popular than GI. 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.
Disclosure: None
