How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Aldeyra Therapeutics Inc (NASDAQ:ALDX) and determine whether hedge funds had an edge regarding this stock.
Aldeyra Therapeutics Inc (NASDAQ:ALDX) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Aldeyra Therapeutics Inc (NASDAQ:ALDX) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ALDX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
To the average investor there are dozens of formulas shareholders employ to appraise stocks. A duo of the most under-the-radar formulas are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the best money managers can trounce the S&P 500 by a very impressive margin (see the details here).
Joseph Edelman of Perceptive Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s go over the key hedge fund action regarding Aldeyra Therapeutics Inc (NASDAQ:ALDX).
What have hedge funds been doing with Aldeyra Therapeutics Inc (NASDAQ:ALDX)?
At second quarter’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 58% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in ALDX a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Perceptive Advisors held the most valuable stake in Aldeyra Therapeutics Inc (NASDAQ:ALDX), which was worth $12.9 million at the end of the third quarter. On the second spot was Prosight Capital which amassed $6.8 million worth of shares. Ghost Tree Capital, Acuta Capital Partners, and Knoll Capital Management 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 Prosight Capital allocated the biggest weight to Aldeyra Therapeutics Inc (NASDAQ:ALDX), around 2.9% of its 13F portfolio. Knoll Capital Management is also relatively very bullish on the stock, dishing out 1.37 percent of its 13F equity portfolio to ALDX.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Ghost Tree Capital, managed by Ken Greenberg and David Kim, established the most valuable position in Aldeyra Therapeutics Inc (NASDAQ:ALDX). Ghost Tree Capital had $4.2 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also made a $3.7 million investment in the stock during the quarter. The following funds were also among the new ALDX investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Donald Sussman’s Paloma Partners, and Chen Tianqiao’s Shanda Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Aldeyra Therapeutics Inc (NASDAQ:ALDX) but similarly valued. We will take a look at PC Tel Inc (NASDAQ:PCTI), Castlight Health Inc (NYSE:CSLT), Drive Shack Inc. (NYSE:DS), Celsion Corporation (NASDAQ:CLSN), Five Star Senior Living Inc. (NASDAQ:FVE), Protalix BioTherapeutics Inc. (NYSE:PLX), and Resonant Inc. (NASDAQ:RESN). All of these stocks’ market caps match ALDX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCTI | 10 | 22803 | -1 |
| CSLT | 18 | 19379 | 5 |
| DS | 9 | 4705 | 6 |
| CLSN | 4 | 2773 | 3 |
| FVE | 5 | 16395 | -2 |
| PLX | 4 | 11384 | 2 |
| RESN | 5 | 10412 | 1 |
| Average | 7.9 | 12550 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.9 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $36 million in ALDX’s case. Castlight Health Inc (NYSE:CSLT) is the most popular stock in this table. On the other hand Celsion Corporation (NASDAQ:CLSN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Aldeyra Therapeutics Inc (NASDAQ:ALDX) is more popular among hedge funds. Our overall hedge fund sentiment score for ALDX is 90. 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. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on ALDX as the stock returned 77.7% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Follow Aldeyra Therapeutics Inc. (NASDAQ:ALDX)
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Disclosure: None. This article was originally published at Insider Monkey.
