Hedge Funds Have Never Been This Bullish On Pfenex Inc (PFNX)

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Pfenex Inc (NYSE:PFNX) was in 13 hedge funds’ portfolios at the end of the first quarter of 2019. PFNX shareholders have witnessed an increase in enthusiasm from smart money in recent months. There were 10 hedge funds in our database with PFNX positions at the end of the previous quarter. Our calculations also showed that pfnx isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

James Flynn Deerfield Management

We’re going to review the latest hedge fund action surrounding Pfenex Inc (NYSE:PFNX).

What does smart money think about Pfenex Inc (NYSE:PFNX)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in PFNX a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with PFNX Positions

More specifically, Renaissance Technologies was the largest shareholder of Pfenex Inc (NYSE:PFNX), with a stake worth $8 million reported as of the end of March. Trailing Renaissance Technologies was Park West Asset Management, which amassed a stake valued at $6.5 million. Deerfield Management, Farallon Capital, and Sio Capital were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Pfenex Inc (NYSE:PFNX). Point72 Asset Management had $0.9 million invested in the company at the end of the quarter. Kamran Moghtaderi’s Eversept Partners also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Andrew Weiss’s Weiss Asset Management.

Let’s go over hedge fund activity in other stocks similar to Pfenex Inc (NYSE:PFNX). We will take a look at Overseas Shipholding Group, Inc. (NYSE:OSG), LF Capital Acquistion Corp. (NASDAQ:LFAC), Adamas Pharmaceuticals Inc (NASDAQ:ADMS), and Nuvectra Corporation (NASDAQ:NVTR). This group of stocks’ market valuations are similar to PFNX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OSG 10 43221 -5
LFAC 10 33730 0
ADMS 11 60975 -1
NVTR 12 25571 -4
Average 10.75 40874 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $29 million in PFNX’s case. Nuvectra Corporation (NASDAQ:NVTR) is the most popular stock in this table. On the other hand Overseas Shipholding Group, Inc. (NYSE:OSG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Pfenex Inc (NYSE:PFNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on PFNX as the stock returned 12.1% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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