Hedge Funds Have Never Been This Bullish On Molecular Templates, Inc. (MTEM)

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 Molecular Templates, Inc. (NASDAQ:MTEM) and determine whether hedge funds had an edge regarding this stock.

Molecular Templates, Inc. (NASDAQ:MTEM) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Molecular Templates, Inc. (NASDAQ:MTEM) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MTEM 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Joseph Edelman of Perceptive Advisors

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. With all of this in mind we’re going to review the latest hedge fund action encompassing Molecular Templates, Inc. (NASDAQ:MTEM).

What have hedge funds been doing with Molecular Templates, Inc. (NASDAQ:MTEM)?

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MTEM over the last 20 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Joseph Edelman’s Perceptive Advisors has the largest position in Molecular Templates, Inc. (NASDAQ:MTEM), worth close to $34.1 million, accounting for 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Mark Lampert of Biotechnology Value Fund / BVF Inc, with a $29.6 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Jeffrey Jay and David Kroin’s Great Point Partners, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Biotechnology Value Fund / BVF Inc allocated the biggest weight to Molecular Templates, Inc. (NASDAQ:MTEM), around 1.83% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, setting aside 1.48 percent of its 13F equity portfolio to MTEM.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Endurant Capital Management, managed by Vishal Saluja and Pham Quang, assembled the largest position in Molecular Templates, Inc. (NASDAQ:MTEM). Endurant Capital Management had $3.2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $2.7 million investment in the stock during the quarter. The other funds with brand new MTEM positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Ken Griffin’s Citadel Investment Group, and Parvinder Thiara’s Athanor Capital.

Let’s check out hedge fund activity in other stocks similar to Molecular Templates, Inc. (NASDAQ:MTEM). We will take a look at Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Protagonist Therapeutics, Inc. (NASDAQ:PTGX), Enerplus Corp (NYSE:ERF), Meta Financial Group Inc. (NASDAQ:CASH), AVROBIO, Inc. (NASDAQ:AVRO), Summit Hotel Properties Inc (NYSE:INN), and Winmark Corporation (NASDAQ:WINA). All of these stocks’ market caps match MTEM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCSL 12 47880 -1
PTGX 11 216579 -4
ERF 16 95925 1
CASH 16 44017 3
AVRO 17 164664 0
INN 8 4709 -4
WINA 13 87187 2
Average 13.3 94423 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $145 million in MTEM’s case. AVROBIO, Inc. (NASDAQ:AVRO) is the most popular stock in this table. On the other hand Summit Hotel Properties Inc (NYSE:INN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Molecular Templates, Inc. (NASDAQ:MTEM) is more popular among hedge funds. Our overall hedge fund sentiment score for MTEM 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately MTEM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MTEM were disappointed as the stock returned -20.8% during the third quarter 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.