Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Eidos Therapeutics, Inc. (NASDAQ:EIDX) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Eidos Therapeutics, Inc. (NASDAQ:EIDX) worth your attention right now? Prominent investors are in a bullish mood. The number of bullish hedge fund bets advanced by 5 lately. Our calculations also showed that EIDX 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Kolchinsky of RA Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a look at the latest hedge fund action encompassing Eidos Therapeutics, Inc. (NASDAQ:EIDX).
How have hedgies been trading Eidos Therapeutics, Inc. (NASDAQ:EIDX)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the third quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in EIDX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, RA Capital Management, managed by Peter Kolchinsky, holds the number one position in Eidos Therapeutics, Inc. (NASDAQ:EIDX). RA Capital Management has a $124.1 million position in the stock, comprising 3.8% of its 13F portfolio. The second most bullish fund manager is Redmile Group, led by Jeremy Green, holding a $40.2 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Joseph Edelman’s Perceptive Advisors, Bihua Chen’s Cormorant Asset Management and James A. Silverman’s Opaleye Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Eidos Therapeutics, Inc. (NASDAQ:EIDX), around 3.76% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to EIDX.
As aggregate interest increased, specific money managers have been driving this bullishness. Driehaus Capital, managed by Richard Driehaus, established the largest position in Eidos Therapeutics, Inc. (NASDAQ:EIDX). Driehaus Capital had $12.5 million invested in the company at the end of the quarter. Greg Martinez’s Parkman Healthcare Partners also initiated a $11.9 million position during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, David Rosen’s Rubric Capital Management, and Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eidos Therapeutics, Inc. (NASDAQ:EIDX) but similarly valued. These stocks are Freshpet Inc (NASDAQ:FRPT), Sally Beauty Holdings, Inc. (NYSE:SBH), Insmed Incorporated (NASDAQ:INSM), and Noah Holdings Limited (NYSE:NOAH). All of these stocks’ market caps are closest to EIDX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FRPT | 20 | 122100 | 2 |
| SBH | 27 | 205932 | 3 |
| INSM | 25 | 489521 | 2 |
| NOAH | 15 | 355694 | -6 |
| Average | 21.75 | 293312 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $312 million in EIDX’s case. Sally Beauty Holdings, Inc. (NYSE:SBH) is the most popular stock in this table. On the other hand Noah Holdings Limited (NYSE:NOAH) is the least popular one with only 15 bullish hedge fund positions. Eidos Therapeutics, Inc. (NASDAQ:EIDX) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately EIDX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EIDX investors were disappointed as the stock returned -23.5% 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 2020.
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.
