Is SPCE Stock A Buy or Sell?

In this article we will take a look at whether hedge funds think Virgin Galactic Holdings, Inc. (NYSE:SPCE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is SPCE stock a buy? Virgin Galactic Holdings, Inc. (NYSE:SPCE) has seen a decrease in hedge fund interest of late. Virgin Galactic Holdings, Inc. (NYSE:SPCE) was in 23 hedge funds’ portfolios at the end of December. The all time high for this statistic is 32. Our calculations also showed that SPCE isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Cathie Wood of ARK Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind we’re going to review the key hedge fund action encompassing Virgin Galactic Holdings, Inc. (NYSE:SPCE).

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

At fourth quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in SPCE over the last 22 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Virgin Galactic Holdings, Inc. (NYSE:SPCE) was held by ARK Investment Management, which reported holding $31.9 million worth of stock at the end of December. It was followed by OZ Management with a $16 million position. Other investors bullish on the company included GLG Partners, Interval Partners, and Royce & Associates. In terms of the portfolio weights assigned to each position BlueMar Capital Management allocated the biggest weight to Virgin Galactic Holdings, Inc. (NYSE:SPCE), around 0.69% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to SPCE.

Seeing as Virgin Galactic Holdings, Inc. (NYSE:SPCE) has witnessed a decline in interest from the smart money, we can see that there were a few funds that decided to sell off their full holdings by the end of the fourth quarter. Intriguingly, Mark Hart III’s Corriente Advisors said goodbye to the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $4.8 million in stock. James Chen’s fund, Ovata Capital Management, also said goodbye to its stock, about $2.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the fourth quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Virgin Galactic Holdings, Inc. (NYSE:SPCE) but similarly valued. We will take a look at Gildan Activewear Inc (NYSE:GIL), MultiPlan Corporation (NYSE:MPLN), Huntsman Corporation (NYSE:HUN), Wyndham Hotels & Resorts, Inc. (NYSE:WH), Science Applications International Corp (NYSE:SAIC), Schrodinger, Inc. (NASDAQ:SDGR), and Starwood Property Trust, Inc. (NYSE:STWD). All of these stocks’ market caps match SPCE’s market cap.

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As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $524 million. That figure was $115 million in SPCE’s case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand Starwood Property Trust, Inc. (NYSE:STWD) is the least popular one with only 13 bullish hedge fund positions. Virgin Galactic Holdings, Inc. (NYSE:SPCE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPCE is 56.8. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately SPCE wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); SPCE investors were disappointed as the stock returned -5.4% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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