Hedge Funds Aren’t Crazy About Neuronetics, Inc. (STIM) Anymore

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Neuronetics, Inc. (NASDAQ:STIM) based on that data.

Neuronetics, Inc. (NASDAQ:STIM) has seen a decrease in enthusiasm from smart money recently. STIM was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. There were 6 hedge funds in our database with STIM holdings at the end of the previous quarter. Our calculations also showed that STIM 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.

Nathan Fischel DAFNA Capital

Nathan Fischel of DAFNA Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the fresh hedge fund action regarding Neuronetics, Inc. (NASDAQ:STIM).

What have hedge funds been doing with Neuronetics, Inc. (NASDAQ:STIM)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in STIM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, James E. Flynn’s Deerfield Management has the number one position in Neuronetics, Inc. (NASDAQ:STIM), worth close to $3 million, amounting to 0.1% of its total 13F portfolio. On Deerfield Management’s heels of Renaissance Technologies, with a $1.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain Nathan Fischel’s DAFNA Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors. In terms of the portfolio weights assigned to each position DAFNA Capital Management allocated the biggest weight to Neuronetics, Inc. (NASDAQ:STIM), around 0.39% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to STIM.

Since Neuronetics, Inc. (NASDAQ:STIM) has faced declining sentiment from the smart money, we can see that there lies a certain “tier” of funds who were dropping their entire stakes heading into Q4. Interestingly, Israel Englander’s Millennium Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $0.2 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.1 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Neuronetics, Inc. (NASDAQ:STIM). These stocks are Bancorp 34, Inc. (NASDAQ:BCTF), MIND C.T.I. Ltd. (NASDAQ:MNDO), Borqs Technologies, Inc. (NASDAQ:BRQS), and DiaMedica Therapeutics Inc. (NASDAQ:DMAC). This group of stocks’ market values are similar to STIM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCTF 2 1789 0
MNDO 1 105 -1
BRQS 1 235 0
DMAC 6 6873 3
Average 2.5 2251 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $5 million in STIM’s case. DiaMedica Therapeutics Inc. (NASDAQ:DMAC) is the most popular stock in this table. On the other hand MIND C.T.I. Ltd. (NASDAQ:MNDO) is the least popular one with only 1 bullish hedge fund positions. Neuronetics, Inc. (NASDAQ:STIM) 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately STIM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STIM were disappointed as the stock returned -3.2% 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.