Hedge Funds Aren’t Crazy About NanoString Technologies Inc (NSTG) Anymore

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards NanoString Technologies Inc (NASDAQ:NSTG) changed recently.

Is NanoString Technologies Inc (NASDAQ:NSTG) undervalued? Hedge funds were becoming less hopeful. The number of bullish hedge fund positions went down by 1 in recent months. NanoString Technologies Inc (NASDAQ:NSTG) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 26. Our calculations also showed that NSTG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 26 hedge funds in our database with NSTG holdings at the end of December.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 115 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.

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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 review the key hedge fund action regarding NanoString Technologies Inc (NASDAQ:NSTG).

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

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NSTG over the last 23 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Catherine D. Wood’s ARK Investment Management has the most valuable position in NanoString Technologies Inc (NASDAQ:NSTG), worth close to $217.8 million, amounting to 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Eminence Capital, managed by Ricky Sandler, which holds a $82.1 million position; 1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism contain Efrem Kamen’s Pura Vida Investments, OrbiMed Advisors and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to NanoString Technologies Inc (NASDAQ:NSTG), around 1.89% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 1.22 percent of its 13F equity portfolio to NSTG.

Since NanoString Technologies Inc (NASDAQ:NSTG) has experienced bearish sentiment from the smart money, we can see that there exists a select few money managers that slashed their entire stakes in the first quarter. At the top of the heap, Joseph Edelman’s Perceptive Advisors dumped the biggest investment of the 750 funds monitored by Insider Monkey, comprising close to $22.6 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $10 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to NanoString Technologies Inc (NASDAQ:NSTG). We will take a look at Chimera Investment Corporation (NYSE:CIM), Renewable Energy Group Inc (NASDAQ:REGI), Sogou Inc. (NYSE:SOGO), Live Oak Bancshares Inc (NASDAQ:LOB), Yelp Inc (NYSE:YELP), TreeHouse Foods Inc. (NYSE:THS), and Papa John’s International, Inc. (NASDAQ:PZZA). This group of stocks’ market valuations resemble NSTG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CIM 15 78464 -1
REGI 21 163318 5
SOGO 16 108357 0
LOB 10 113600 -7
YELP 20 513325 -11
THS 27 368885 3
PZZA 32 355821 0
Average 20.1 243110 -1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $627 million in NSTG’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 10 bullish hedge fund positions. NanoString Technologies Inc (NASDAQ:NSTG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NSTG is 66.9. 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 July 9th and beat the market again by 6.7 percentage points. Unfortunately NSTG wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NSTG were disappointed as the stock returned -4.5% since the end of March (through 7/9) 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.