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 Arcadia Biosciences, Inc. (NASDAQ:RKDA).
Arcadia Biosciences, Inc. (NASDAQ:RKDA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Titan Medical Inc. (NASDAQ:TMDI), Organovo Holdings Inc (NASDAQ:ONVO), and Gulf Resources, Inc. (NASDAQ:GURE) to gather more data points. Our calculations also showed that RKDA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s analyze the fresh hedge fund action regarding Arcadia Biosciences, Inc. (NASDAQ:RKDA).
What does smart money think about Arcadia Biosciences, Inc. (NASDAQ:RKDA)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 1 hedge funds held shares or bullish call options in RKDA a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, David E. Shaw’s D E Shaw has the number one position in Arcadia Biosciences, Inc. (NASDAQ:RKDA), worth close to $0.9 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Sabby Capital, led by Hal Mintz, holding a $0.2 million position; 0.1% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position Sabby Capital allocated the biggest weight to Arcadia Biosciences, Inc. (NASDAQ:RKDA), around 0.13% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, setting aside 0.0011 percent of its 13F equity portfolio to RKDA.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was D E Shaw).
Let’s check out hedge fund activity in other stocks similar to Arcadia Biosciences, Inc. (NASDAQ:RKDA). These stocks are Titan Medical Inc. (NASDAQ:TMDI), Organovo Holdings Inc (NASDAQ:ONVO), Gulf Resources, Inc. (NASDAQ:GURE), and Performance Shipping Inc. (NASDAQ:DCIX). This group of stocks’ market values match RKDA’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in RKDA’s case. Organovo Holdings Inc (NASDAQ:ONVO) is the most popular stock in this table. On the other hand Gulf Resources, Inc. (NASDAQ:GURE) is the least popular one with only 1 bullish hedge fund positions. Arcadia Biosciences, Inc. (NASDAQ:RKDA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RKDA, though not to the same extent, as the stock returned 6.2% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.