Were Hedge Funds Right About TFF Pharmaceuticals, Inc. (TFFP)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about TFF Pharmaceuticals, Inc. (NASDAQ:TFFP).

Is TFF Pharmaceuticals, Inc. (NASDAQ:TFFP) a bargain? The smart money was turning bullish. The number of long hedge fund positions inched up by 8 in recent months. TFF Pharmaceuticals, Inc. (NASDAQ:TFFP) was in 17 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 9. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TFFP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Nick Thakore of Diametric Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we’re going to take a look at the recent hedge fund action regarding TFF Pharmaceuticals, Inc. (NASDAQ:TFFP).

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

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 89% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in TFFP a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Corriente Advisors was the largest shareholder of TFF Pharmaceuticals, Inc. (NASDAQ:TFFP), with a stake worth $21.2 million reported as of the end of March. Trailing Corriente Advisors was Nantahala Capital Management, which amassed a stake valued at $5.2 million. Hudson Bay Capital Management, Millennium Management, and Granite Point Capital 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 Corriente Advisors allocated the biggest weight to TFF Pharmaceuticals, Inc. (NASDAQ:TFFP), around 7.82% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, dishing out 0.99 percent of its 13F equity portfolio to TFFP.

Now, some big names were breaking ground themselves. Granite Point Capital, managed by Warren Lammert, established the biggest position in TFF Pharmaceuticals, Inc. (NASDAQ:TFFP). Granite Point Capital had $2.9 million invested in the company at the end of the quarter. David Cohen and Harold Levy’s Iridian Asset Management also initiated a $2.8 million position during the quarter. The other funds with new positions in the stock are Clint Carlson’s Carlson Capital, Peter A. Wright’s P.A.W. CAPITAL PARTNERS, and Nick Thakore’s Diametric Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as TFF Pharmaceuticals, Inc. (NASDAQ:TFFP) but similarly valued. We will take a look at North American Construction Group Ltd. (NYSE:NOA), CymaBay Therapeutics Inc (NASDAQ:CBAY), WhiteHorse Finance, Inc. (NASDAQ:WHF), United Insurance Holdings Corp. (NASDAQ:UIHC), Silicom Ltd. (NASDAQ:SILC), Landec Corporation (NASDAQ:LNDC), and Heritage Insurance Holdings Inc (NYSE:HRTG). All of these stocks’ market caps are similar to TFFP’s market cap.

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As you can see these stocks had an average of 10.4 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $49 million in TFFP’s case. CymaBay Therapeutics Inc (NASDAQ:CBAY) is the most popular stock in this table. On the other hand WhiteHorse Finance, Inc. (NASDAQ:WHF) is the least popular one with only 3 bullish hedge fund positions. TFF Pharmaceuticals, Inc. (NASDAQ:TFFP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TFFP is 86.7. 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. This is a slightly positive signal but 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately TFFP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TFFP were disappointed as the stock returned -31.5% since the end of March (through 7/23) 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 many of these stocks already outperformed the market since 2019.

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