Did Hedge Funds Make The Right Call On PTC Therapeutics, Inc. (PTCT) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of PTC Therapeutics, Inc. (NASDAQ:PTCT) based on that data and determine whether they were really smart about the stock.

PTC Therapeutics, Inc. (NASDAQ:PTCT) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that PTCT 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

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 analyze the recent hedge fund action encompassing PTC Therapeutics, Inc. (NASDAQ:PTCT).

How have hedgies been trading PTC Therapeutics, Inc. (NASDAQ:PTCT)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PTCT over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PTCT A Good Stock To Buy?

Among these funds, Great Point Partners held the most valuable stake in PTC Therapeutics, Inc. (NASDAQ:PTCT), which was worth $78.7 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $53.5 million worth of shares. OrbiMed Advisors, D E Shaw, and Point72 Asset 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 Great Point Partners allocated the biggest weight to PTC Therapeutics, Inc. (NASDAQ:PTCT), around 8.22% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, designating 8.03 percent of its 13F equity portfolio to PTCT.

Due to the fact that PTC Therapeutics, Inc. (NASDAQ:PTCT) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers who sold off their positions entirely in the first quarter. Intriguingly, Jeremy Green’s Redmile Group cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $41.3 million in stock. fund, Farallon Capital, also dumped its stock, about $34.9 million worth. These moves are important to note, as total hedge fund interest was cut by 6 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to PTC Therapeutics, Inc. (NASDAQ:PTCT). We will take a look at Acacia Communications, Inc. (NASDAQ:ACIA), Omnicell, Inc. (NASDAQ:OMCL), El Paso Electric Company (NYSE:EE), and Rexnord Corp (NYSE:RXN). This group of stocks’ market values match PTCT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACIA 22 693548 -9
OMCL 17 54589 4
EE 23 398088 8
RXN 19 213250 -6
Average 20.25 339869 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $378 million in PTCT’s case. El Paso Electric Company (NYSE:EE) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks PTC Therapeutics, Inc. (NASDAQ:PTCT) 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 PTCT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PTCT were disappointed as the stock returned 13.7% 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.