Foundation Medicine Inc (FMI): Hedge Fund Sentiment Unchanged

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Hedge fund interest in Foundation Medicine Inc (NASDAQ:FMI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Quidel Corporation (NASDAQ:QDEL), Raven Industries, Inc. (NASDAQ:RAVN), and Chegg Inc (NYSE:CHGG) to gather more data points.

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In the 21st century investor’s toolkit, there are numerous indicators stock market investors employ to appraise their holdings. A duo of the less utilized indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can trounce the S&P 500 by a significant amount (see the details here).

With all of this in mind, let’s review the new action surrounding Foundation Medicine Inc (NASDAQ:FMI).

What have hedge funds been doing with Foundation Medicine Inc (NASDAQ:FMI)?

At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Discovery Group, managed by Michael Murphy and Daniel Donoghue, holds the most valuable position in Foundation Medicine Inc (NASDAQ:FMI). Discovery Group has a $20 million position in the stock, comprising 6.9% of its 13F portfolio. The second most bullish fund manager is Brookside Capital, managed by Bain Capital, which holds a $18.1 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Israel Englander’s Millennium Management, Anthony Giammalva’s Sound Energy Partners, and Julian Baker and Felix Baker’s Baker Bros. Advisors.

Because Foundation Medicine Inc (NASDAQ:FMI) has a faced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of money managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Peter Muller’s PDT Partners sold off the largest stake of all the hedgies tracked by Insider Monkey, worth about $0.7 million in stock. Mark Wolfson and Jamie Alexander’s fund, Jasper Ridge Partners, also said goodbye to its stock, about $0.2 million worth of shares. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Foundation Medicine Inc (NASDAQ:FMI) but similarly valued. These stocks are Quidel Corporation (NASDAQ:QDEL), Raven Industries, Inc. (NASDAQ:RAVN), Chegg Inc (NYSE:CHGG), and Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). This group of stocks’ market values matches Foundation Medicine Inc (NASDAQ:FMI)’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QDEL 12 29063 -3
RAVN 9 46272 0
CHGG 12 85934 -4
DHIL 5 75358 -2

As you can see, these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $47 million in Foundation Medicine Inc (NASDAQ:FMI)’s case. Quidel Corporation (NASDAQ:QDEL) is the most popular stock in this table. On the other hand, Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) is the least popular one with only 5 bullish hedge fund positions. Foundation Medicine Inc (NASDAQ:FMI) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Quidel Corporation (NASDAQ:QDEL) might be a better candidate to consider a long position.