Catalyst Biosciences Inc (CBIO): Hedge Fund Sentiment Unchanged But Bullish

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Catalyst Biosciences Inc (NASDAQ:CBIO).

Hedge fund interest in Catalyst Biosciences Inc (NASDAQ:CBIO) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AGBA Acquisition Limited (NASDAQ:AGBA), Pluristem Therapeutics Inc. (NASDAQ:PSTI), and ALJ Regional Holdings, Inc. (NASDAQ:ALJJ) to gather more data points. Our calculations also showed that CBIO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to review the latest hedge fund action encompassing Catalyst Biosciences Inc (NASDAQ:CBIO).

How have hedgies been trading Catalyst Biosciences Inc (NASDAQ:CBIO)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in CBIO a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is CBIO A Good Stock To Buy?

The largest stake in Catalyst Biosciences Inc (NASDAQ:CBIO) was held by Nantahala Capital Management, which reported holding $5.2 million worth of stock at the end of September. It was followed by Mangrove Partners with a $3.5 million position. Other investors bullish on the company included Millennium Management, Prosight Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Catalyst Biosciences Inc (NASDAQ:CBIO), around 1.52% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to CBIO.

Because Catalyst Biosciences Inc (NASDAQ:CBIO) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers who were dropping their positions entirely in the third quarter. At the top of the heap, Donald Sussman’s Paloma Partners said goodbye to the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $0.5 million in stock. David E. Shaw’s fund, D E Shaw, also cut its stock, about $0.2 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Catalyst Biosciences Inc (NASDAQ:CBIO) but similarly valued. We will take a look at AGBA Acquisition Limited (NASDAQ:AGBA), Pluristem Therapeutics Inc. (NASDAQ:PSTI), ALJ Regional Holdings, Inc. (NASDAQ:ALJJ), and Luby’s, Inc. (NYSE:LUB). This group of stocks’ market caps are closest to CBIO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGBA 3 4291 3
PSTI 3 868 1
ALJJ 3 826 1
LUB 3 7318 -1
Average 3 3326 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $19 million in CBIO’s case. AGBA Acquisition Limited (NASDAQ:AGBA) is the most popular stock in this table. On the other hand AGBA Acquisition Limited (NASDAQ:AGBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Catalyst Biosciences Inc (NASDAQ:CBIO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CBIO as the stock returned 11% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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