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Hedge Funds Are Souring On NeoGenomics, Inc. (NEO)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded NeoGenomics, Inc. (NASDAQ:NEO) and determine whether the smart money was really smart about this stock.

Is NeoGenomics, Inc. (NASDAQ:NEO) the right pick for your portfolio? Hedge funds were in a bearish mood. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that NEO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding NeoGenomics, Inc. (NASDAQ:NEO).

Hedge fund activity in NeoGenomics, Inc. (NASDAQ:NEO)

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the fourth quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in NEO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in NeoGenomics, Inc. (NASDAQ:NEO) was held by Driehaus Capital, which reported holding $22 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $7.2 million position. Other investors bullish on the company included Royce & Associates, Burrage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Burrage Capital Management allocated the biggest weight to NeoGenomics, Inc. (NASDAQ:NEO), around 5.16% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, setting aside 0.74 percent of its 13F equity portfolio to NEO.

Since NeoGenomics, Inc. (NASDAQ:NEO) has faced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $1.3 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $0.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NeoGenomics, Inc. (NASDAQ:NEO) but similarly valued. These stocks are Virgin Galactic Holdings, Inc. (NYSE:SPCE), Hess Midstream LP (NYSE:HESM), Immunomedics, Inc. (NASDAQ:IMMU), and Pinnacle Financial Partners, Inc. (NASDAQ:PNFP). All of these stocks’ market caps are similar to NEO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPCE 12 55139 -20
HESM 5 5430 -4
IMMU 27 701345 -1
PNFP 13 32487 -3
Average 14.25 198600 -7

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $51 million in NEO’s case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand Hess Midstream LP (NYSE:HESM) is the least popular one with only 5 bullish hedge fund positions. NeoGenomics, Inc. (NASDAQ:NEO) 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. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately NEO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NEO investors were disappointed as the stock returned 12.2% during the second 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.

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