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Did Hedge Funds Drop The Ball On Inogen Inc (INGN) ?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Inogen Inc (NASDAQ:INGN).

Is Inogen Inc (NASDAQ:INGN) the right investment to pursue these days? Hedge funds are reducing their bets on the stock. The number of long hedge fund bets were cut by 4 recently. Our calculations also showed that INGN 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.

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the new hedge fund action encompassing Inogen Inc (NASDAQ:INGN).

How are hedge funds trading Inogen Inc (NASDAQ:INGN)?

Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in INGN over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of Inogen Inc (NASDAQ:INGN), with a stake worth $59.2 million reported as of the end of September. Trailing AQR Capital Management was Two Sigma Advisors, which amassed a stake valued at $16.7 million. Millennium Management, Renaissance Technologies, and Deerfield 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 DAFNA Capital Management allocated the biggest weight to Inogen Inc (NASDAQ:INGN), around 0.41% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to INGN.

Judging by the fact that Inogen Inc (NASDAQ:INGN) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers who sold off their entire stakes in the third quarter. Interestingly, Christopher James’s Partner Fund Management sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $9.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $4.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Inogen Inc (NASDAQ:INGN). We will take a look at Blucora Inc (NASDAQ:BCOR), Sangamo Therapeutics, Inc. (NASDAQ:SGMO), KEMET Corporation (NYSE:KEM), and Mesa Laboratories, Inc. (NASDAQ:MLAB). All of these stocks’ market caps are similar to INGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCOR 14 99880 -2
SGMO 14 55789 -3
KEM 18 180934 0
MLAB 8 97695 0
Average 13.5 108575 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $136 million in INGN’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Mesa Laboratories, Inc. (NASDAQ:MLAB) is the least popular one with only 8 bullish hedge fund positions. Inogen Inc (NASDAQ:INGN) is not the most popular stock in this group but hedge fund interest is still above average. 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 INGN as the stock returned 53.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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