Hedge Funds Are Buying Veracyte Inc (VCYT)

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index returned about 5.2% during the last 12 months ending October 30, 2015. Less than 49% of the stocks in the index outperformed the index. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 30 S&P 500 stocks among hedge funds at the end of September 2014 had an average return of 9.5% during the same period. Sixty three percent of these 30 stocks outperformed the market. Hedge funds had bad stock picks like everyone else. Micron, which lost 50% over this period, was one of hedge funds’ 30 favorite S&P 500 stocks. Anadarko Petroleum was another failed stock pick which lost more than 26%. So, taking cues from hedge funds isn’t a foolproof strategy, but it seems to work on average. In this article, we will take a look at what hedge funds think about Veracyte Inc (NASDAQ:VCYT).

Veracyte’s stock has jumped by more than 10% in the last month, but it is still 29% in the red year-to-date. Nevertheless, during the third quarter the number of funds bullish on the stock, among those that we track, inched up and we have decided to take a look at which funds are betting on the biotech company. At the end of this article we will also compare VCYT to other stocks, including Cadiz Inc (NASDAQ:CDZI), Layne Christensen Company (NASDAQ:LAYN), and BioScrip Inc. (NASDAQ:BIOS) to get a better sense of its popularity.

To the average investor there are plenty of gauges stock traders put to use to value stocks. A pair of the most useful gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outpace the broader indices by a very impressive amount (see the details here).

With all of this in mind, let’s take a gander at the fresh action surrounding Veracyte Inc (NASDAQ:VCYT).

How have hedgies been trading Veracyte Inc (NASDAQ:VCYT)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by one over the quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Charles Clough’s Clough Capital Partners has the most valuable position in Veracyte Inc (NASDAQ:VCYT), worth close to $6.6 million, accounting for 0.3% of its total 13F portfolio. On Clough Capital Partners’s heels is Stephen DuBois’ Camber Capital Management, with a $4.3 million position; 0.4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism encompass Behzad Aghazadeh’s venBio Select Advisor, Kevin Kotler’s Broadfin Capital, and Israel Englander’s Millennium Management.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Veracyte Inc (NASDAQ:VCYT) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the largest position in Veracyte Inc (NASDAQ:VCYT). Driehaus Capital had $1.1 million invested in the company at the end of the quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Veracyte Inc (NASDAQ:VCYT) but similarly valued. We will take a look at Cadiz Inc (NASDAQ:CDZI), Layne Christensen Company (NASDAQ:LAYN), BioScrip Inc. (NASDAQ:BIOS), and Harvard Bioscience, Inc. (NASDAQ:HBIO). This group of stocks’ market caps are similar to VCYT’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $26 million in VCYT’s case. BioScrip Inc. (NASDAQ:BIOS) is the most popular stock in this table with a total of 14 funds reporting stakes in the company. On the other hand Cadiz Inc (NASDAQ:CDZI) is the least popular one with only 6 bullish hedge fund positions. Veracyte Inc (NASDAQ:VCYT) 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 BIOS might be a better candidate to consider a long position.