Is Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) the right pick for your portfolio? The smart money is buying. The number of bullish hedge fund positions improved by 1 in recent months. Our calculations also showed that ALNA 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.
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 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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action encompassing Allena Pharmaceuticals, Inc. (NASDAQ:ALNA).
What does smart money think about Allena Pharmaceuticals, Inc. (NASDAQ:ALNA)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALNA over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) was held by Frazier Healthcare Partners, which reported holding $13.1 million worth of stock at the end of September. It was followed by Partner Fund Management with a $1.9 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Perceptive Advisors. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Allena Pharmaceuticals, Inc. (NASDAQ:ALNA), around 4.1% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to ALNA.
There weren’t any hedge funds initiating brand new positions in the stock during the third quarter.
Let’s now review hedge fund activity in other stocks similar to Allena Pharmaceuticals, Inc. (NASDAQ:ALNA). These stocks are Independence Contract Drilling Inc (NYSE:ICD), Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX), Four Seasons Education (Cayman) Inc. (NYSE:FEDU), and TransAct Technologies Incorporated (NASDAQ:TACT). All of these stocks’ market caps resemble ALNA’s market cap.
|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 6 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $19 million in ALNA’s case. Independence Contract Drilling Inc (NYSE:ICD) is the most popular stock in this table. On the other hand Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX) is the least popular one with only 3 bullish hedge fund positions. Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ALNA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALNA were disappointed as the stock returned -43.9% during the fourth quarter (through the end of November) 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.