At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards CareDx, Inc. (NASDAQ:CDNA) at the end of the second quarter and determine whether the smart money was really smart about this stock.
CareDx, Inc. (NASDAQ:CDNA) investors should be aware of an increase in enthusiasm from smart money recently. CareDx, Inc. (NASDAQ:CDNA) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that CDNA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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. 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 to get excerpts of these letters in your inbox. Now let’s take a look at the new hedge fund action encompassing CareDx, Inc. (NASDAQ:CDNA).
How are hedge funds trading CareDx, Inc. (NASDAQ:CDNA)?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CDNA over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Consonance Capital Management, managed by Mitchell Blutt, holds the biggest position in CareDx, Inc. (NASDAQ:CDNA). Consonance Capital Management has a $79.1 million position in the stock, comprising 4.7% of its 13F portfolio. On Consonance Capital Management’s heels is Casdin Capital, managed by Eli Casdin, which holds a $42.3 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Some other peers with similar optimism contain D. E. Shaw’s D E Shaw, Steve Cohen’s Point72 Asset Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to CareDx, Inc. (NASDAQ:CDNA), around 4.74% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, designating 2.5 percent of its 13F equity portfolio to CDNA.
As one would reasonably expect, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in CareDx, Inc. (NASDAQ:CDNA). Point72 Asset Management had $21.5 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $8.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Josh Goldberg’s G2 Investment Partners Management, Matthew L Pinz’s Pinz Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to CareDx, Inc. (NASDAQ:CDNA). These stocks are Sanmina Corporation (NASDAQ:SANM), Intra-Cellular Therapies Inc (NASDAQ:ITCI), Northwest Natural Holding Company (NYSE:NWN), Fulton Financial Corp (NASDAQ:FULT), Xperi Holding Corporation (NASDAQ:XPER), Glaukos Corporation (NYSE:GKOS), and Edgewell Personal Care Company (NYSE:EPC). This group of stocks’ market caps match CDNA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $258 million in CDNA’s case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks CareDx, Inc. (NASDAQ:CDNA) is more popular among hedge funds. Our overall hedge fund sentiment score for CDNA is 87.6. 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 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately CDNA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CDNA were disappointed as the stock returned 7.1% during the third 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.
Disclosure: None. This article was originally published at Insider Monkey.