Is Otonomy Inc (NASDAQ:OTIC) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Otonomy Inc (NASDAQ:OTIC) was in 8 hedge funds’ portfolios at the end of September. OTIC investors should pay attention to a decrease in enthusiasm from smart money lately. There were 9 hedge funds in our database with OTIC positions at the end of the previous quarter. Our calculations also showed that OTIC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are a large number of formulas investors can use to evaluate publicly traded companies. A couple of the less known formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outclass the broader indices by a healthy margin (see the details here).
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the latest hedge fund action surrounding Otonomy Inc (NASDAQ:OTIC).
How have hedgies been trading Otonomy Inc (NASDAQ:OTIC)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in OTIC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Otonomy Inc (NASDAQ:OTIC), which was worth $4.1 million at the end of the third quarter. On the second spot was 683 Capital Partners which amassed $2.6 million worth of shares. Pura Vida Investments, D E Shaw, and Eversept Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to Otonomy Inc (NASDAQ:OTIC), around 0.83% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to OTIC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 750+ hedge funds tracked by Insider Monkey identified OTIC as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks similar to Otonomy Inc (NASDAQ:OTIC). These stocks are Tuesday Morning Corporation (NASDAQ:TUES), Superior Industries International Inc. (NYSE:SUP), Orgenesis Inc. (NASDAQ:ORGS), and Apollo Endosurgery, Inc. (NASDAQ:APEN). All of these stocks’ market caps match OTIC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TUES | 12 | 5356 | 3 |
| SUP | 16 | 13920 | 1 |
| ORGS | 1 | 685 | 0 |
| APEN | 3 | 6392 | 0 |
| Average | 8 | 6588 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $12 million in OTIC’s case. Superior Industries International Inc. (NYSE:SUP) is the most popular stock in this table. On the other hand Orgenesis Inc. (NASDAQ:ORGS) is the least popular one with only 1 bullish hedge fund positions. Otonomy Inc (NASDAQ:OTIC) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OTIC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OTIC investors were disappointed as the stock returned 5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
