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Did Hedge Funds Drop The Ball On Vermillion, Inc. (VRML) ?

Is VRML A Good Stock To Buy?Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Vermillion, Inc. (NASDAQ:VRML) and see how the stock is affected by the recent hedge fund activity.

Is Vermillion, Inc. (NASDAQ:VRML) a healthy stock for your portfolio? Investors who are in the know are taking a bullish view. The number of bullish hedge fund positions went up by 1 recently. Our calculations also showed that VRML isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). VRML was in 4 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with VRML positions at the end of the previous quarter.
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.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

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 as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding Vermillion, Inc. (NASDAQ:VRML).

Hedge fund activity in Vermillion, Inc. (NASDAQ:VRML)

At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. By comparison, 1 hedge funds held shares or bullish call options in VRML a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is VRML A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Matthew Strobeck’s Birchview Capital has the most valuable position in Vermillion, Inc. (NASDAQ:VRML), worth close to $1.7 million, amounting to 1.1% of its total 13F portfolio. Coming in second is Opaleye Management, managed by James A. Silverman, which holds a $0.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish comprise Anand Parekh’s Alyeska Investment Group, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Vermillion, Inc. (NASDAQ:VRML), around 1.12% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, setting aside 0.24 percent of its 13F equity portfolio to VRML.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in Vermillion, Inc. (NASDAQ:VRML). Millennium Management had $0.1 million invested in the company at the end of the quarter.

Let’s also examine hedge fund activity in other stocks similar to Vermillion, Inc. (NASDAQ:VRML). We will take a look at Teligent, Inc. (NASDAQ:TLGT), Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLRD), Digital Power Corporation (NYSE:DPW), and Moleculin Biotech, Inc. (NASDAQ:MBRX). This group of stocks’ market caps are similar to VRML’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TLGT 7 11557 -1
WHLRD 3 9717 3
DPW 1 9351 0
MBRX 2 1275 1
Average 3.25 7975 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $3 million in VRML’s case. Teligent, Inc. (NASDAQ:TLGT) is the most popular stock in this table. On the other hand Digital Power Corporation (NYSE:DPW) is the least popular one with only 1 bullish hedge fund positions. Vermillion, Inc. (NASDAQ:VRML) 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 VRML as the stock returned 51.9% 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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