Is ZGNX Stock A Buy or Sell?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Zogenix, Inc. (NASDAQ:ZGNX).

Is ZGNX stock a buy or sell? Money managers were getting less optimistic. The number of bullish hedge fund positions retreated by 8 lately. Zogenix, Inc. (NASDAQ:ZGNX) was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 38. Our calculations also showed that ZGNX 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).

Peter Kolchinsky of RA Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. 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 let’s take a look at the recent hedge fund action encompassing Zogenix, Inc. (NASDAQ:ZGNX).

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

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in ZGNX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Zogenix, Inc. (NASDAQ:ZGNX) was held by RA Capital Management, which reported holding $106.9 million worth of stock at the end of December. It was followed by Cadian Capital with a $105.4 million position. Other investors bullish on the company included Marshall Wace LLP, Farallon Capital, and Woodline Partners. In terms of the portfolio weights assigned to each position Cadian Capital allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 2.71% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, designating 2.16 percent of its 13F equity portfolio to ZGNX.

Since Zogenix, Inc. (NASDAQ:ZGNX) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few hedgies that slashed their positions entirely in the fourth quarter. Interestingly, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) sold off the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $15.7 million in stock, and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management was right behind this move, as the fund cut about $7.5 million worth. These transactions are important to note, as total hedge fund interest dropped by 8 funds in the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zogenix, Inc. (NASDAQ:ZGNX) but similarly valued. We will take a look at Athira Pharma, Inc. (NASDAQ:ATHA), BP Midstream Partners LP (NYSE:BPMP), Amerisafe, Inc. (NASDAQ:AMSF), CTS Corporation (NYSE:CTS), Oxford Industries, Inc. (NYSE:OXM), Community Healthcare Trust Inc (NYSE:CHCT), and PetIQ, Inc. (NASDAQ:PETQ). This group of stocks’ market valuations match ZGNX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.7 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $487 million in ZGNX’s case. Athira Pharma, Inc. (NASDAQ:ATHA) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) is more popular among hedge funds. Our overall hedge fund sentiment score for ZGNX is 70.7. 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 12.2% in 2021 through April 12th and still beat the market by 1.5 percentage points. Unfortunately ZGNX wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZGNX were disappointed as the stock returned -5.3% since the end of the fourth quarter (through 4/12) 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.