Is WVE Stock A Buy or Sell?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards WAVE Life Sciences Ltd. (NASDAQ:WVE).

Is WVE stock a buy? WAVE Life Sciences Ltd. (NASDAQ:WVE) investors should be aware of a decrease in enthusiasm from smart money lately. WAVE Life Sciences Ltd. (NASDAQ:WVE) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 24. There were 24 hedge funds in our database with WVE positions at the end of the third quarter. Our calculations also showed that WVE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Wil Harkey of Nantahala Capital 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. Now we’re going to analyze the recent hedge fund action surrounding WAVE Life Sciences Ltd. (NASDAQ:WVE).

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

At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WVE over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, RA Capital Management, managed by Peter Kolchinsky, holds the largest position in WAVE Life Sciences Ltd. (NASDAQ:WVE). RA Capital Management has a $61.2 million position in the stock, comprising 0.9% of its 13F portfolio. The second largest stake is held by Wilmot B. Harkey and Daniel Mack of Nantahala Capital Management, with a $26.4 million position; 0.8% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism include Joseph Edelman’s Perceptive Advisors, D. E. Shaw’s D E Shaw and Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to WAVE Life Sciences Ltd. (NASDAQ:WVE), around 0.86% of its 13F portfolio. Nantahala Capital Management is also relatively very bullish on the stock, setting aside 0.82 percent of its 13F equity portfolio to WVE.

Judging by the fact that WAVE Life Sciences Ltd. (NASDAQ:WVE) has witnessed falling interest from the smart money, it’s easy to see that there was a specific group of fund managers who were dropping their entire stakes heading into Q1. Interestingly, Jonathan Barrett and Paul Segal’s Luminus Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $7.6 million in stock, and Matthew L Pinz’s Pinz Capital was right behind this move, as the fund said goodbye to about $4.9 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds heading into Q1.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as WAVE Life Sciences Ltd. (NASDAQ:WVE) but similarly valued. We will take a look at IMARA Inc. (NASDAQ:IMRA), Hooker Furniture Corporation (NASDAQ:HOFT), Aptose Biosciences Inc (NASDAQ:APTO), First Community Bancshares Inc (NASDAQ:FCBC), Bicycle Therapeutics plc (NASDAQ:BCYC), Americas Gold and Silver Corporation (NYSE:USAS), and Experience Investment Corp. (NASDAQ:EXPC). This group of stocks’ market valuations are similar to WVE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $136 million in WVE’s case. Aptose Biosciences Inc (NASDAQ:APTO) is the most popular stock in this table. On the other hand Americas Gold and Silver Corporation (NYSE:USAS) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks WAVE Life Sciences Ltd. (NASDAQ:WVE) is more popular among hedge funds. Our overall hedge fund sentiment score for WVE is 82.8. 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. 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 still beat the market by 0.9 percentage points. Unfortunately WVE wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on WVE were disappointed as the stock returned -24.4% since the end of the fourth quarter (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 since 2019.

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