Hedge Funds Have Never Been This Bullish On Menlo Therapeutics Inc. (MNLO)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Menlo Therapeutics Inc. (NASDAQ:MNLO).

Menlo Therapeutics Inc. (NASDAQ:MNLO) investors should be aware of an increase in activity from the world’s largest hedge funds lately. MNLO was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 7 hedge funds in our database with MNLO holdings at the end of the previous quarter. Our calculations also showed that MNLO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathan Fischel DAFNA Capital

Nathan Fischel of DAFNA Capital Management

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the key hedge fund action surrounding Menlo Therapeutics Inc. (NASDAQ:MNLO).

How have hedgies been trading Menlo Therapeutics Inc. (NASDAQ:MNLO)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 157% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in MNLO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MNLO A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Joseph Edelman’s Perceptive Advisors has the largest position in Menlo Therapeutics Inc. (NASDAQ:MNLO), worth close to $17.5 million, accounting for 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Vivo Capital, led by Albert Cha and Frank Kung, holding a $10.3 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Ari Zweiman’s 683 Capital Partners, Samuel Isaly’s OrbiMed Advisors and Jeffrey Jay and David Kroin’s Great Point Partners. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Menlo Therapeutics Inc. (NASDAQ:MNLO), around 3.83% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, setting aside 0.93 percent of its 13F equity portfolio to MNLO.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Perceptive Advisors, managed by Joseph Edelman, created the largest position in Menlo Therapeutics Inc. (NASDAQ:MNLO). Perceptive Advisors had $17.5 million invested in the company at the end of the quarter. Ari Zweiman’s 683 Capital Partners also initiated a $5.4 million position during the quarter. The following funds were also among the new MNLO investors: Samuel Isaly’s OrbiMed Advisors, Steve Cohen’s Point72 Asset Management, and Joe Riccardo’s Healthcare Value Capital.

Let’s also examine hedge fund activity in other stocks similar to Menlo Therapeutics Inc. (NASDAQ:MNLO). These stocks are Ovid Therapeutics Inc. (NASDAQ:OVID), Jounce Therapeutics, Inc. (NASDAQ:JNCE), FedNat Holding Co (NASDAQ:FNHC), and Fidus Investment Corp (NASDAQ:FDUS). This group of stocks’ market valuations are similar to MNLO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OVID 12 18770 -5
JNCE 10 8854 -6
FNHC 7 12007 1
FDUS 8 3314 2
Average 9.25 10736 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $54 million in MNLO’s case. Ovid Therapeutics Inc. (NASDAQ:OVID) is the most popular stock in this table. On the other hand FedNat Holding Co (NASDAQ:FNHC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Menlo Therapeutics Inc. (NASDAQ:MNLO) is more popular among hedge funds. 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 gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately MNLO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MNLO were disappointed as the stock returned -19.4% during the second quarter (through June 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.