Did Hedge Funds Make The Right Call On BioDelivery Sciences International, Inc. (BDSI) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards BioDelivery Sciences International, Inc. (NASDAQ:BDSI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is BioDelivery Sciences International, Inc. (NASDAQ:BDSI) the right investment to pursue these days? Prominent investors were becoming hopeful. The number of long hedge fund positions rose by 2 in recent months. Our calculations also showed that BDSI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tim Lynch of Stonepine Capital

Tim Lynch of Stonepine Capital

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 let’s take a gander at the recent hedge fund action regarding BioDelivery Sciences International, Inc. (NASDAQ:BDSI).

What does smart money think about BioDelivery Sciences International, Inc. (NASDAQ:BDSI)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BDSI over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Deerfield Management held the most valuable stake in BioDelivery Sciences International, Inc. (NASDAQ:BDSI), which was worth $23.4 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $19 million worth of shares. Rubric Capital Management, Avoro Capital Advisors (venBio Select Advisor), and Adage Capital 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 Stonepine Capital allocated the biggest weight to BioDelivery Sciences International, Inc. (NASDAQ:BDSI), around 3.03% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, dishing out 2.26 percent of its 13F equity portfolio to BDSI.

With a general bullishness amongst the heavyweights, some big names have jumped into BioDelivery Sciences International, Inc. (NASDAQ:BDSI) headfirst. Deerfield Management, managed by James E. Flynn, assembled the biggest position in BioDelivery Sciences International, Inc. (NASDAQ:BDSI). Deerfield Management had $23.4 million invested in the company at the end of the quarter. Julian Baker and Felix Baker’s Baker Bros. Advisors also initiated a $6.2 million position during the quarter. The following funds were also among the new BDSI investors: Timothy P. Lynch’s Stonepine Capital, Dov Gertzulin’s DG Capital Management, and Richard Driehaus’s Driehaus Capital.

Let’s go over hedge fund activity in other stocks similar to BioDelivery Sciences International, Inc. (NASDAQ:BDSI). These stocks are Extreme Networks, Inc (NASDAQ:EXTR), Global Indemnity Limited (NASDAQ:GBLI), Seneca Foods Corp (NASDAQ:SENEA), and ViewRay, Inc. (NASDAQ:VRAY). This group of stocks’ market values resemble BDSI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXTR 16 48943 -1
GBLI 4 25028 -2
SENEA 7 25303 0
VRAY 12 81516 -10
Average 9.75 45198 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $103 million in BDSI’s case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand Global Indemnity Limited (NASDAQ:GBLI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is more popular among hedge funds. 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 and still beat the market by 15.5 percentage points. Unfortunately BDSI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BDSI were disappointed as the stock returned 15% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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