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Aldeyra Therapeutics Inc (ALDX): Hedge Funds In Wait-and-See Mode

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAldeyra Therapeutics Inc (NASDAQ:ALDX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Aldeyra Therapeutics Inc (NASDAQ:ALDX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ALDX to other stocks including Centennial Resource Development, Inc. (NASDAQ:CDEV), Delta Apparel, Inc. (NYSE:DLA), and Eton Pharmaceuticals, Inc. (NASDAQ:ETON) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Joseph Edelman of Perceptive Advisors

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the latest hedge fund action surrounding Aldeyra Therapeutics Inc (NASDAQ:ALDX).

What does smart money think about Aldeyra Therapeutics Inc (NASDAQ:ALDX)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALDX over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Perceptive Advisors held the most valuable stake in Aldeyra Therapeutics Inc (NASDAQ:ALDX), which was worth $7.6 million at the end of the third quarter. On the second spot was Prosight Capital which amassed $5 million worth of shares. Sphera Global Healthcare Fund, 683 Capital Partners, and Millennium Management 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 Prosight Capital allocated the biggest weight to Aldeyra Therapeutics Inc (NASDAQ:ALDX), around 2.35% of its 13F portfolio. Knoll Capital Management is also relatively very bullish on the stock, designating 1.32 percent of its 13F equity portfolio to ALDX.

Because Aldeyra Therapeutics Inc (NASDAQ:ALDX) has experienced declining sentiment from the smart money, logic holds that there is a sect of funds that decided to sell off their full holdings by the end of the first quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the biggest position of all the hedgies monitored by Insider Monkey, valued at an estimated $5.8 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also sold off its stock, about $0 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Aldeyra Therapeutics Inc (NASDAQ:ALDX) but similarly valued. These stocks are Centennial Resource Development, Inc. (NASDAQ:CDEV), Delta Apparel, Inc. (NYSE:DLA), Eton Pharmaceuticals, Inc. (NASDAQ:ETON), and Galmed Pharmaceuticals Ltd (NASDAQ:GLMD). All of these stocks’ market caps are closest to ALDX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDEV 18 17555 -11
DLA 4 4188 -1
ETON 4 18066 2
GLMD 10 18167 0
Average 9 14494 -2.5

View table here if you experience formatting issues.

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 $14 million. That figure was $23 million in ALDX’s case. Centennial Resource Development, Inc. (NASDAQ:CDEV) is the most popular stock in this table. On the other hand Delta Apparel, Inc. (NYSE:DLA) is the least popular one with only 4 bullish hedge fund positions. Aldeyra Therapeutics Inc (NASDAQ:ALDX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALDX as the stock returned 68.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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