Hedge Funds Are Piling Into DermTech, Inc. (DMTK)

At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not DermTech, Inc. (NASDAQ:DMTK) makes for a good investment right now.

Is DermTech, Inc. (NASDAQ:DMTK) a buy, sell, or hold? The best stock pickers were taking an optimistic view. The number of bullish hedge fund positions increased by 1 lately. DermTech, Inc. (NASDAQ:DMTK) was in 19 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DMTK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Now let’s check out the new hedge fund action encompassing DermTech, Inc. (NASDAQ:DMTK).

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

At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in DMTK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in DermTech, Inc. (NASDAQ:DMTK) was held by Casdin Capital, which reported holding $72.5 million worth of stock at the end of June. It was followed by Iszo Capital with a $45.3 million position. Other investors bullish on the company included Cormorant Asset Management, Iron Triangle Partners, and 12 West Capital Management. In terms of the portfolio weights assigned to each position Iszo Capital allocated the biggest weight to DermTech, Inc. (NASDAQ:DMTK), around 16.46% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 1.84 percent of its 13F equity portfolio to DMTK.

Now, some big names have jumped into DermTech, Inc. (NASDAQ:DMTK) headfirst. 12 West Capital Management, managed by Joel Ramin, assembled the largest position in DermTech, Inc. (NASDAQ:DMTK). 12 West Capital Management had $6.2 million invested in the company at the end of the quarter. Zachary Miller’s Parian Global Management also initiated a $3.4 million position during the quarter. The other funds with brand new DMTK positions are D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to DermTech, Inc. (NASDAQ:DMTK). We will take a look at StoneX Group Inc. (NASDAQ:SNEX), CTS Corporation (NYSE:CTS), H&E Equipment Services, Inc. (NASDAQ:HEES), Loral Space & Communications Inc (NASDAQ:LORL), Dril-Quip, Inc. (NYSE:DRQ), Laredo Petroleum Inc (NYSE:LPI), and Five Point Holdings, LLC (NYSE:FPH). This group of stocks’ market values are similar to DMTK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $176 million in DMTK’s case. StoneX Group Inc. (NASDAQ:SNEX) is the most popular stock in this table. On the other hand Dril-Quip, Inc. (NYSE:DRQ) is the least popular one with only 9 bullish hedge fund positions. DermTech, Inc. (NASDAQ:DMTK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DMTK is 81.5. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately DMTK wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DMTK were disappointed as the stock returned -27.3% since the end of June (through 10/22) 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 many of these stocks already outperformed the market since 2019.

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