Is Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) shares was flat at the end of last quarter. This is usually a negative indicator. 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 The Joint Corp. (NASDAQ:JYNT), PDL Community Bancorp (NASDAQ:PDLB), and Covenant Transportation Group, Inc. (NASDAQ:CVTI) to gather more data points. Our calculations also showed that CNST isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let’s analyze the fresh hedge fund action surrounding Constellation Pharmaceuticals, Inc. (NASDAQ:CNST).
What does smart money think about Constellation Pharmaceuticals, Inc. (NASDAQ:CNST)?
At Q2’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNST over the last 16 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), with a stake worth $18.7 million reported as of the end of March. Trailing Casdin Capital was Cormorant Asset Management, which amassed a stake valued at $15.6 million. OrbiMed Advisors, Hillhouse Capital Management, and Deerfield Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. 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 P.A.W. CAPITAL PARTNERS).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) but similarly valued. We will take a look at The Joint Corp. (NASDAQ:JYNT), PDL Community Bancorp (NASDAQ:PDLB), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and Value Line, Inc. (NASDAQ:VALU). This group of stocks’ market values are closest to CNST’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 7 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $55 million in CNST’s case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand PDL Community Bancorp (NASDAQ:PDLB) is the least popular one with only 2 bullish hedge fund positions. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CNST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNST were disappointed as the stock returned -47.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.