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Hedge Funds Are Souring On XOMA Corp (XOMA)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of XOMA Corp (NASDAQ:XOMA).

XOMA Corp (NASDAQ:XOMA) shareholders have witnessed a decrease in enthusiasm from smart money recently. Our calculations also showed that XOMA 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.

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 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 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.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 we’re going to take a look at the recent hedge fund action regarding XOMA Corp (NASDAQ:XOMA).

Hedge fund activity in XOMA Corp (NASDAQ:XOMA)

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in XOMA over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XOMA A Good Stock To Buy?

Among these funds, Biotechnology Value Fund / BVF Inc held the most valuable stake in XOMA Corp (NASDAQ:XOMA), which was worth $56.4 million at the end of the third quarter. On the second spot was Opaleye Management which amassed $7.9 million worth of shares. Stonepine Capital, Millennium Management, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Biotechnology Value Fund / BVF Inc allocated the biggest weight to XOMA Corp (NASDAQ:XOMA), around 5.26% of its 13F portfolio. Stonepine Capital is also relatively very bullish on the stock, earmarking 4.49 percent of its 13F equity portfolio to XOMA.

Since XOMA Corp (NASDAQ:XOMA) has witnessed bearish sentiment from the smart money, logic holds that there was a specific group of hedgies that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dropped the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $0.9 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to XOMA Corp (NASDAQ:XOMA). These stocks are Berry Petroleum Corporation (NASDAQ:BRY), General Finance Corporation (NASDAQ:GFN), ChromaDex Corporation (NASDAQ:CDXC), and Akoustis Technologies, Inc. (NASDAQ:AKTS). This group of stocks’ market values are closest to XOMA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRY 16 35516 -4
GFN 3 7301 -2
CDXC 3 419 2
AKTS 3 7621 -3
Average 6.25 12714 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $76 million in XOMA’s case. Berry Petroleum Corporation (NASDAQ:BRY) is the most popular stock in this table. On the other hand General Finance Corporation (NASDAQ:GFN) is the least popular one with only 3 bullish hedge fund positions. XOMA Corp (NASDAQ:XOMA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately XOMA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XOMA were disappointed as the stock returned 8.9% during the same time period 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.