Did The Smart Money Get Novavax, Inc. (NVAX) Right?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Novavax, Inc. (NASDAQ:NVAX) and determine whether hedge funds had an edge regarding this stock.

Novavax, Inc. (NASDAQ:NVAX) investors should pay attention to a decrease in hedge fund sentiment recently. Novavax, Inc. (NASDAQ:NVAX) was in 35 hedge funds’ portfolios at the end of September. The all time high for this statistic is 38. There were 37 hedge funds in our database with NVAX positions at the end of the second quarter. Our calculations also showed that NVAX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a glance at the recent hedge fund action regarding Novavax, Inc. (NASDAQ:NVAX).

Do Hedge Funds Think NVAX Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in NVAX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, RA Capital Management was the largest shareholder of Novavax, Inc. (NASDAQ:NVAX), with a stake worth $434.9 million reported as of the end of September. Trailing RA Capital Management was Citadel Investment Group, which amassed a stake valued at $197.1 million. Rock Springs Capital Management, Partner Fund Management, and Citadel Investment Group 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 RA Capital Management allocated the biggest weight to Novavax, Inc. (NASDAQ:NVAX), around 6.03% of its 13F portfolio. Samsara BioCapital is also relatively very bullish on the stock, earmarking 2.69 percent of its 13F equity portfolio to NVAX.

Since Novavax, Inc. (NASDAQ:NVAX) has faced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of funds that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Brian Ashford-Russell and Tim Woolley’s Polar Capital sold off the largest stake of all the hedgies watched by Insider Monkey, worth about $19.1 million in stock, and Albert Cha and Frank Kung’s Vivo Capital was right behind this move, as the fund said goodbye to about $18.7 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Novavax, Inc. (NASDAQ:NVAX). These stocks are Royalty Pharma Plc (NASDAQ:RPRX), Just Eat Takeaway.com N.V. (NASDAQ:GRUB), United Airlines Holdings Inc (NASDAQ:UAL), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), Paylocity Holding Corp (NASDAQ:PCTY), Nomura Holdings, Inc. (NYSE:NMR), and The AES Corporation (NYSE:AES). This group of stocks’ market valuations are similar to NVAX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $718 million. That figure was $787 million in NVAX’s case. The AES Corporation (NYSE:AES) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 6 bullish hedge fund positions. Novavax, Inc. (NASDAQ:NVAX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVAX is 66. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, NVAX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NVAX were disappointed as the stock returned -54.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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