Hedge Funds Are Piling Into Vapotherm, Inc. (VAPO)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vapotherm, Inc. (NYSE:VAPO) and determine whether hedge funds skillfully traded this stock.

Vapotherm, Inc. (NYSE:VAPO) has experienced an increase in activity from the world’s largest hedge funds in recent months. Vapotherm, Inc. (NYSE:VAPO) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 12 hedge funds in our database with VAPO positions at the end of the first quarter. Our calculations also showed that VAPO 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

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 are checking out this junior gold mining stock and 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 to get excerpts of these letters in your inbox. Now let’s analyze the latest hedge fund action encompassing Vapotherm, Inc. (NYSE:VAPO).

What does smart money think about Vapotherm, Inc. (NYSE:VAPO)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VAPO over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Parian Global Management, managed by Zachary Miller, holds the largest position in Vapotherm, Inc. (NYSE:VAPO). Parian Global Management has a $69.5 million position in the stock, comprising 18.1% of its 13F portfolio. On Parian Global Management’s heels is Perceptive Advisors, managed by Joseph Edelman, which holds a $54.9 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Richard Driehaus’s Driehaus Capital, Renaissance Technologies and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Parian Global Management allocated the biggest weight to Vapotherm, Inc. (NYSE:VAPO), around 18.12% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, designating 2.86 percent of its 13F equity portfolio to VAPO.

As one would reasonably expect, some big names have jumped into Vapotherm, Inc. (NYSE:VAPO) headfirst. Renaissance Technologies, created the most outsized position in Vapotherm, Inc. (NYSE:VAPO). Renaissance Technologies had $22.7 million invested in the company at the end of the quarter. Jaime Sterne’s Skye Global Management also made a $12.1 million investment in the stock during the quarter. The other funds with brand new VAPO positions are Michael Castor’s Sio Capital, Kamran Moghtaderi’s Eversept Partners, and Josh Goldberg’s G2 Investment Partners Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Vapotherm, Inc. (NYSE:VAPO) but similarly valued. These stocks are Nexa Resources S.A. (NYSE:NEXA), Griffon Corporation (NYSE:GFF), Heska Corp (NASDAQ:HSKA), Ingles Markets, Incorporated (NASDAQ:IMKTA), Stratasys, Ltd. (NASDAQ:SSYS), Newmark Group, Inc. (NASDAQ:NMRK), and Transportadora de Gas del Sur SA (NYSE:TGS). This group of stocks’ market values are closest to VAPO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEXA 4 3545 0
GFF 9 98383 -4
HSKA 14 170234 -1
IMKTA 16 74626 5
SSYS 19 91672 5
NMRK 24 94291 0
TGS 5 12707 -1
Average 13 77923 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $258 million in VAPO’s case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 4 bullish hedge fund positions. Vapotherm, Inc. (NYSE:VAPO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VAPO is 75. 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 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 beat the market by 19.3 percentage points. Unfortunately VAPO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VAPO were disappointed as the stock returned -29.3% in Q3 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 many of these stocks already outperformed the market so far this year.

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