We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Axsome Therapeutics, Inc. (NASDAQ:AXSM) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Axsome Therapeutics, Inc. (NASDAQ:AXSM) a worthy investment now? The smart money is in an optimistic mood. The number of bullish hedge fund positions went up by 9 in recent months. Our calculations also showed that AXSM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). AXSM was in 25 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with AXSM positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the new hedge fund action encompassing Axsome Therapeutics, Inc. (NASDAQ:AXSM).
What does smart money think about Axsome Therapeutics, Inc. (NASDAQ:AXSM)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in AXSM over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Julian Baker and Felix Baker’s Baker Bros. Advisors has the number one position in Axsome Therapeutics, Inc. (NASDAQ:AXSM), worth close to $85.8 million, comprising 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Great Point Partners, managed by Jeffrey Jay and David Kroin, which holds a $75.2 million call position; the fund has 6.5% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise David Cohen and Harold Levy’s Iridian Asset Management, Bihua Chen’s Cormorant Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to Axsome Therapeutics, Inc. (NASDAQ:AXSM), around 6.54% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, setting aside 3.91 percent of its 13F equity portfolio to AXSM.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Cormorant Asset Management, managed by Bihua Chen, initiated the largest position in Axsome Therapeutics, Inc. (NASDAQ:AXSM). Cormorant Asset Management had $62 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey’s Healthcor Management LP also initiated a $42.2 million position during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, David Harding’s Winton Capital Management, and Arsani William’s Logos Capital.
Let’s check out hedge fund activity in other stocks similar to Axsome Therapeutics, Inc. (NASDAQ:AXSM). These stocks are Viper Energy Partners LP (NASDAQ:VNOM), First Hawaiian, Inc. (NASDAQ:FHB), Eagle Materials, Inc. (NYSE:EXP), and Murphy USA Inc. (NYSE:MUSA). This group of stocks’ market caps resemble AXSM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNOM | 16 | 102830 | 1 |
| FHB | 18 | 170316 | -2 |
| EXP | 38 | 537210 | -2 |
| MUSA | 28 | 330732 | 6 |
| Average | 25 | 285272 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $577 million in AXSM’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 16 bullish hedge fund positions. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AXSM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AXSM investors were disappointed as the stock returned -39.5% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
