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Did Hedge Funds Make The Right Call On SeaSpine Holdings Corp (SPNE) ?

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 SeaSpine Holdings Corp (NASDAQ:SPNE) based on that data and determine whether they were really smart about the stock.

SeaSpine Holdings Corp (NASDAQ:SPNE) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. SPNE investors should be aware of an increase in hedge fund sentiment lately. There were 10 hedge funds in our database with SPNE positions at the end of the previous quarter. Our calculations also showed that SPNE 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.

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’ 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 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.

Tim Lynch of Stonepine Capital

Tim Lynch of Stonepine Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to analyze the recent hedge fund action encompassing SeaSpine Holdings Corp (NASDAQ:SPNE).

How are hedge funds trading SeaSpine Holdings Corp (NASDAQ:SPNE)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 90% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SPNE over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Driehaus Capital held the most valuable stake in SeaSpine Holdings Corp (NASDAQ:SPNE), which was worth $11.2 million at the end of the third quarter. On the second spot was Hawk Ridge Management which amassed $5.7 million worth of shares. Renaissance Technologies, Stonepine Capital, and Parkman Healthcare Partners 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 SeaSpine Holdings Corp (NASDAQ:SPNE), around 2.19% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, setting aside 0.96 percent of its 13F equity portfolio to SPNE.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, initiated the most outsized position in SeaSpine Holdings Corp (NASDAQ:SPNE). Driehaus Capital had $11.2 million invested in the company at the end of the quarter. Timothy P. Lynch’s Stonepine Capital also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new SPNE investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Anand Parekh’s Alyeska Investment Group, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks similar to SeaSpine Holdings Corp (NASDAQ:SPNE). These stocks are GigCapital2, Inc. (NYSE:GIX), Daktronics, Inc. (NASDAQ:DAKT), Spark Energy, Inc. (NASDAQ:SPKE), and Siebert Financial Corp. (NASDAQ:SIEB). All of these stocks’ market caps match SPNE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GIX 10 42372 1
DAKT 16 13300 3
SPKE 10 9894 -1
SIEB 1 82 0
Average 9.25 16412 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $32 million in SPNE’s case. Daktronics, Inc. (NASDAQ:DAKT) is the most popular stock in this table. On the other hand Siebert Financial Corp. (NASDAQ:SIEB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks SeaSpine Holdings Corp (NASDAQ:SPNE) 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 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on SPNE, though not to the same extent, as the stock returned 26.9% since Q1 and outperformed the market as well.

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