Hedge Funds Have Never Been This Bullish On Neuronetics, Inc. (STIM)

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Neuronetics, Inc. (NASDAQ:STIM).

Neuronetics, Inc. (NASDAQ:STIM) investors should be aware of an increase in enthusiasm from smart money lately. Neuronetics, Inc. (NASDAQ:STIM) was in 19 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that STIM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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 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.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s review the key hedge fund action encompassing Neuronetics, Inc. (NASDAQ:STIM).

Do Hedge Funds Think STIM Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards STIM over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is STIM A Good Stock To Buy?

More specifically, Polar Capital was the largest shareholder of Neuronetics, Inc. (NASDAQ:STIM), with a stake worth $15.5 million reported as of the end of March. Trailing Polar Capital was Archon Capital Management, which amassed a stake valued at $15 million. Kent Lake Capital, Parian Global Management, and Royce & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Parian Global Management allocated the biggest weight to Neuronetics, Inc. (NASDAQ:STIM), around 6.39% of its 13F portfolio. Kent Lake Capital is also relatively very bullish on the stock, setting aside 6.07 percent of its 13F equity portfolio to STIM.

Now, key hedge funds have jumped into Neuronetics, Inc. (NASDAQ:STIM) headfirst. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, established the largest position in Neuronetics, Inc. (NASDAQ:STIM). Polar Capital had $15.5 million invested in the company at the end of the quarter. Zachary Miller’s Parian Global Management also initiated a $14 million position during the quarter. The other funds with brand new STIM positions are Jeremy Green’s Redmile Group, John Overdeck and David Siegel’s Two Sigma Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to Neuronetics, Inc. (NASDAQ:STIM). We will take a look at Ceragon Networks Ltd. (NASDAQ:CRNT), Home Bancorp, Inc. (NASDAQ:HBCP), Coastal Financial Corporation (NASDAQ:CCB), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Investors Title Company (NASDAQ:ITIC), TFF Pharmaceuticals, Inc. (NASDAQ:TFFP), and North American Construction Group Ltd. (NYSE:NOA). All of these stocks’ market caps match STIM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRNT 8 25462 1
HBCP 2 6478 -1
CCB 3 25177 0
CVGI 14 72822 -6
ITIC 5 41599 -2
TFFP 17 48807 8
NOA 10 37315 2
Average 8.4 36809 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $123 million in STIM’s case. TFF Pharmaceuticals, Inc. (NASDAQ:TFFP) is the most popular stock in this table. On the other hand Home Bancorp, Inc. (NASDAQ:HBCP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Neuronetics, Inc. (NASDAQ:STIM) is more popular among hedge funds. Our overall hedge fund sentiment score for STIM is 89. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on STIM, though not to the same extent, as the stock returned 9.9% since the end of March (through July 16th) and outperformed the market as well.

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