Hedge Funds Are Crazy About Mereo BioPharma Group plc (MREO)

The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Mereo BioPharma Group plc (NASDAQ:MREO).

Mereo BioPharma Group plc (NASDAQ:MREO) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MREO investors should pay attention to an increase in hedge fund sentiment recently. There were 17 hedge funds in our database with MREO positions at the end of the fourth quarter. Our calculations also showed that MREO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. 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 homepage. Keeping this in mind let’s take a look at the new hedge fund action encompassing Mereo BioPharma Group plc (NASDAQ:MREO).

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

At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in MREO over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Point72 Asset Management, managed by Steve Cohen, holds the most valuable position in Mereo BioPharma Group plc (NASDAQ:MREO). Point72 Asset Management has a $27.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Baker Bros. Advisors, managed by Julian Baker and Felix Baker, which holds a $22.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Aaron Cowen’s Suvretta Capital Management, Joseph Edelman’s Perceptive Advisors and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Commodore Capital allocated the biggest weight to Mereo BioPharma Group plc (NASDAQ:MREO), around 2.72% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, setting aside 1.18 percent of its 13F equity portfolio to MREO.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the largest position in Mereo BioPharma Group plc (NASDAQ:MREO). Point72 Asset Management had $27.9 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also made a $20.2 million investment in the stock during the quarter. The other funds with brand new MREO positions are Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Vishal Saluja and Pham Quang’s Endurant Capital Management, and Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mereo BioPharma Group plc (NASDAQ:MREO) but similarly valued. We will take a look at Transcat, Inc. (NASDAQ:TRNS), Intelligent Systems Corporation (NYSE:INS), Civista Bancshares, Inc. (NASDAQ:CIVB), Marrone Bio Innovations Inc (NASDAQ:MBII), NL Industries, Inc. (NYSE:NL), American National BankShares Inc (NASDAQ:AMNB), and Laredo Petroleum Inc (NYSE:LPI). All of these stocks’ market caps are closest to MREO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRNS 7 40885 1
INS 7 46814 -1
CIVB 10 11027 -2
MBII 6 30732 1
NL 3 1874 2
AMNB 3 5471 0
LPI 14 38152 4
Average 7.1 24994 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.1 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $196 million in MREO’s case. Laredo Petroleum Inc (NYSE:LPI) is the most popular stock in this table. On the other hand NL Industries, Inc. (NYSE:NL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Mereo BioPharma Group plc (NASDAQ:MREO) is more popular among hedge funds. Our overall hedge fund sentiment score for MREO is 90. 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 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Unfortunately MREO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MREO were disappointed as the stock returned -16% since the end of the first quarter (through 7/16) 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 most of these stocks already outperformed the market since 2019.

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