At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Axsome Therapeutics, Inc. (NASDAQ:AXSM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Axsome Therapeutics, Inc. (NASDAQ:AXSM) undervalued? The best stock pickers were getting more bullish. The number of long hedge fund bets advanced by 7 lately. Axsome Therapeutics, Inc. (NASDAQ:AXSM) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AXSM 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to review the key hedge fund action regarding Axsome Therapeutics, Inc. (NASDAQ:AXSM).
How have hedgies been trading Axsome Therapeutics, Inc. (NASDAQ:AXSM)?
At second quarter’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AXSM over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, RA Capital Management held the most valuable stake in Axsome Therapeutics, Inc. (NASDAQ:AXSM), which was worth $167.5 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $89.3 million worth of shares. Baker Bros. Advisors, Citadel Investment Group, and Cormorant Asset Management 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 RA Capital Management allocated the biggest weight to Axsome Therapeutics, Inc. (NASDAQ:AXSM), around 3.26% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to AXSM.
As one would reasonably expect, some big names have been driving this bullishness. Perceptive Advisors, managed by Joseph Edelman, assembled the most outsized position in Axsome Therapeutics, Inc. (NASDAQ:AXSM). Perceptive Advisors had $4.1 million invested in the company at the end of the quarter. Greg Martinez’s Parkman Healthcare Partners also made a $3.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Donald Sussman’s Paloma Partners, and Noam Gottesman’s GLG Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Axsome Therapeutics, Inc. (NASDAQ:AXSM) but similarly valued. We will take a look at Intercorp Financial Services Inc. (NYSE:IFS), SmileDirectClub, Inc. (NASDAQ:SDC), EQT Corporation (NYSE:EQT), Bank OZK (NASDAQ:OZK), Foot Locker, Inc. (NYSE:FL), NovaGold Resources Inc. (NYSE:NG), and UFP Industries, Inc. (NASDAQ:UFPI). All of these stocks’ market caps are similar to AXSM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $552 million in AXSM’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 2 bullish hedge fund positions. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AXSM is 85.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately AXSM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AXSM were disappointed as the stock returned 0.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.