Should I Buy MediciNova, Inc. (MNOV)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded MediciNova, Inc. (NASDAQ:MNOV) based on those filings.

Hedge fund interest in MediciNova, Inc. (NASDAQ:MNOV) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MNOV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare MNOV to other stocks including Flexsteel Industries, Inc. (NASDAQ:FLXS), Bel Fuse, Inc. (NASDAQ:BELFB), and EDAP TMS S.A. (NASDAQ:EDAP) to get a better sense of its popularity.

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.

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $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 go over the recent hedge fund action regarding MediciNova, Inc. (NASDAQ:MNOV).

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

Heading into the second quarter of 2021, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in MNOV over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in MediciNova, Inc. (NASDAQ:MNOV), worth close to $0.8 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by D E Shaw, managed by D. E. Shaw, which holds a $0.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism contain Ken Griffin’s Citadel Investment Group, and Bruce Kovner’s Caxton Associates LP. In terms of the portfolio weights assigned to each position Caxton Associates LP allocated the biggest weight to MediciNova, Inc. (NASDAQ:MNOV), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.001 percent of its 13F equity portfolio to MNOV.

Since MediciNova, Inc. (NASDAQ:MNOV) has faced bearish sentiment from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely in the first quarter. At the top of the heap, David Einhorn’s Greenlight Capital dropped the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $1 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to MediciNova, Inc. (NASDAQ:MNOV). We will take a look at Flexsteel Industries, Inc. (NASDAQ:FLXS), Bel Fuse, Inc. (NASDAQ:BELFB), EDAP TMS S.A. (NASDAQ:EDAP), Glory Star New Media Group Holdings Limited (NASDAQ:GSMG), Exfo Inc (NASDAQ:EXFO), Brasilagro Cia Brasileira De Propriedades Agricolas (NYSE:LND), and Mammoth Energy Services, Inc. (NASDAQ:TUSK). This group of stocks’ market values are similar to MNOV’s market value.

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As you can see these stocks had an average of 6.6 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $1 million in MNOV’s case. Flexsteel Industries, Inc. (NASDAQ:FLXS) is the most popular stock in this table. On the other hand Brasilagro Cia Brasileira De Propriedades Agricolas (NYSE:LND) is the least popular one with only 1 bullish hedge fund positions. MediciNova, Inc. (NASDAQ:MNOV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MNOV is 38.8. 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 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 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately MNOV wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MNOV investors were disappointed as the stock returned -15.2% since the end of March (through 6/11) 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 in 2021.

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

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