Should I Avoid Millendo Therapeutics, Inc. (MLND)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Millendo Therapeutics, Inc. (NASDAQ:MLND).

Millendo Therapeutics, Inc. (NASDAQ:MLND) has seen a decrease in activity from the world’s largest hedge funds recently. Millendo Therapeutics, Inc. (NASDAQ:MLND) was in 6 hedge funds’ portfolios at the end of March. The all time high for this statistic is 13. There were 9 hedge funds in our database with MLND positions at the end of the fourth quarter. Our calculations also showed that MLND isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Thomas Claugus of GMT Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s view the recent hedge fund action surrounding Millendo Therapeutics, Inc. (NASDAQ:MLND).

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

Heading into the second quarter of 2021, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in MLND a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ikarian Capital, managed by Neil Shahrestani, holds the most valuable position in Millendo Therapeutics, Inc. (NASDAQ:MLND). Ikarian Capital has a $1.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is Renaissance Technologies, with a $1.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions comprise Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and David M. Knott’s Dorset Management. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Millendo Therapeutics, Inc. (NASDAQ:MLND), around 0.07% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to MLND.

Judging by the fact that Millendo Therapeutics, Inc. (NASDAQ:MLND) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their positions entirely last quarter. Intriguingly, Ken Greenberg and David Kim’s Ghost Tree Capital said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $2 million in stock, and Egen Atkinson and Michael Kramarz’s Commodore Capital was right behind this move, as the fund dumped about $2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Millendo Therapeutics, Inc. (NASDAQ:MLND) but similarly valued. These stocks are FG Financial Group, Inc. (NASDAQ:FGF), CynergisTek, Inc. (NYSE:CTEK), PLUS THERAPEUTICS, Inc. (NASDAQ:PSTV), New Concept Energy, Inc. (NYSE:GBR), GEE Group Inc. (NYSE:JOB), InnSuites Hospitality Trust (NYSE:IHT), and Barnwell Industries, Inc. (NYSE:BRN). This group of stocks’ market valuations are similar to MLND’s market valuation.

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As you can see these stocks had an average of 2.3 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $4 million in MLND’s case. CynergisTek, Inc. (NYSE:CTEK) is the most popular stock in this table. On the other hand PLUS THERAPEUTICS, Inc. (NASDAQ:PSTV) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Millendo Therapeutics, Inc. (NASDAQ:MLND) is more popular among hedge funds. Our overall hedge fund sentiment score for MLND is 65.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Unfortunately MLND wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MLND were disappointed as the stock returned -11.7% since the end of the first quarter (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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