Should You Avoid Wright Medical Group NV (TRNX)?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Wright Medical Group NV (NASDAQ:TRNX).

Is Wright Medical Group NV (NASDAQ:TRNX) the right pick for your portfolio? Hedge funds are in a bearish mood. The number of bullish hedge fund positions went down by 6 in recent months. At the end of this article we will also compare TRNX to other stocks including Enerplus Corp (USA) (NYSE:ERF), Abaxis Inc (NASDAQ:ABAX), and Lumentum Holdings Inc (NASDAQ:LITE) to get a better sense of its popularity.

To the average investor there are tons of indicators investors employ to value stocks. Some of the most innovative indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can beat the S&P 500 by a significant amount (see the details here).

Keeping this in mind, let’s go over the key action encompassing Wright Medical Group NV (NASDAQ:TRNX).

What have hedge funds been doing with Wright Medical Group NV (NASDAQ:TRNX)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the second quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, holds the largest position in Wright Medical Group NV (NASDAQ:TRNX). Rock Springs Capital Management has a $13.5 million position in the stock, comprising 1.1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $9.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Steve Cohen’s Point72 Asset Management, Alec Litowitz and Ross Laser’s Magnetar Capital and Phill Gross and Robert Atchinson’s Adage Capital Management.

Seeing as Wright Medical Group NV (NASDAQ:TRNX) has experienced a decline in interest from hedge fund managers, we can see that there exists a select few hedgies who were dropping their entire stakes heading into Q4. It’s worth mentioning that Samuel Isaly’s OrbiMed Advisors cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $120.1 million in stock, and Brian Taylor’s Pine River Capital Management was right behind this move, as the fund sold off about $7.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Wright Medical Group NV (NASDAQ:TRNX) but similarly valued. We will take a look at Enerplus Corp (USA) (NYSE:ERF), Abaxis Inc (NASDAQ:ABAX), Lumentum Holdings Inc (NASDAQ:LITE), and Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM). All of these stocks’ market caps match TRNX’s market cap.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $60 million, as compared to $61 million in TRNX’s case. Tower Semiconductor Ltd. (USA) (NASDAQ:TSEM) is the most popular stock in this table. On the other hand Lumentum Holdings Inc (NASDAQ:LITE) is the least popular one with only 10 bullish hedge fund positions. Wright Medical Group NV (NASDAQ:TRNX) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TSEM might be a better candidate to consider a long position.