Do Hedge Funds Love Titan Medical Inc. (TMDI)?

Is Titan Medical Inc. (NASDAQ:TMDI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Titan Medical Inc. (NASDAQ:TMDI) a cheap investment now? Money managers were in a pessimistic mood. The number of long hedge fund positions were cut by 3 recently. Titan Medical Inc. (NASDAQ:TMDI) was in 3 hedge funds’ portfolios at the end of September. The all time high for this statistics is 6. Our calculations also showed that TMDI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 6 hedge funds in our database with TMDI positions at the end of the second quarter.

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 66 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.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website. Now let’s check out the fresh hedge fund action encompassing Titan Medical Inc. (NASDAQ:TMDI).

What does smart money think about Titan Medical Inc. (NASDAQ:TMDI)?

At Q3’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from the second quarter of 2020. On the other hand, there were a total of 4 hedge funds with a bullish position in TMDI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Titan Medical Inc. (NASDAQ:TMDI) was held by Masters Capital Management, which reported holding $1.1 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $0.2 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.

Seeing as Titan Medical Inc. (NASDAQ:TMDI) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that slashed their full holdings in the third quarter. It’s worth mentioning that Steven Boyd’s Armistice Capital said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $2 million in stock. Renaissance Technologies, also dumped its stock, about $0 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Titan Medical Inc. (NASDAQ:TMDI). We will take a look at Celcuity Inc. (NASDAQ:CELC), Armata Pharmaceuticals, Inc. (NYSE:ARMP), RumbleOn, Inc. (NASDAQ:RMBL), Synacor Inc (NASDAQ:SYNC), Coda Octopus Group, Inc. (NASDAQ:CODA), Research Solutions, Inc (NASDAQ:RSSS), and Portman Ridge Finance Corporation (NASDAQ:PTMN). This group of stocks’ market valuations resemble TMDI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CELC 1 307 -2
ARMP 1 299 0
RMBL 2 824 1
SYNC 6 7433 1
CODA 3 390 -3
RSSS 2 13120 1
PTMN 8 3230 -1
Average 3.3 3658 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.3 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $1 million in TMDI’s case. Portman Ridge Finance Corporation (NASDAQ:PTMN) is the most popular stock in this table. On the other hand Celcuity Inc. (NASDAQ:CELC) is the least popular one with only 1 bullish hedge fund positions. Titan Medical Inc. (NASDAQ:TMDI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TMDI is 31.3. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on TMDI, though not to the same extent, as the stock returned 6.8% since the end of Q3 (through November 23rd) and outperformed the market.

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