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Hedge Funds Never Been Less Bullish On Rafael Holdings, Inc. (RFL)

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 Rafael Holdings, Inc. (NYSE:RFL).

Is Rafael Holdings, Inc. (NYSE:RFL) a safe stock to buy now? Prominent investors are taking a bearish view. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that RFL 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). RFL was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. There were 7 hedge funds in our database with RFL positions at the end of the previous quarter.

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 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.

Irving Kahn

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we’re going to take a look at the key hedge fund action surrounding Rafael Holdings, Inc. (NYSE:RFL).

What does smart money think about Rafael Holdings, Inc. (NYSE:RFL)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in RFL 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 RFL A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the largest position in Rafael Holdings, Inc. (NYSE:RFL). Nantahala Capital Management has a $6.1 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Kahn Brothers, holding a $5.6 million position; 1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions encompass Renaissance Technologies, Noah Levy and Eugene Dozortsev’s Newtyn Management and Guy Levy’s Soleus Capital. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Rafael Holdings, Inc. (NYSE:RFL), around 1.81% of its 13F portfolio. Soleus Capital is also relatively very bullish on the stock, earmarking 1.33 percent of its 13F equity portfolio to RFL.

Since Rafael Holdings, Inc. (NYSE:RFL) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that elected to cut their entire stakes heading into Q4. Intriguingly, Murray Stahl’s Horizon Asset Management cut the biggest investment of the 750 funds followed by Insider Monkey, totaling an estimated $0.3 million in stock. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $0.2 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Rafael Holdings, Inc. (NYSE:RFL). We will take a look at Spok Holdings Inc (NASDAQ:SPOK), Beazer Homes USA, Inc. (NYSE:BZH), Irsa Inversiones y Rprsntcins SA (NYSE:IRS), and Exagen Inc. (NASDAQ:XGN). All of these stocks’ market caps are similar to RFL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPOK 13 22419 1
BZH 12 22450 -2
IRS 6 13568 0
XGN 1 7 -1
Average 8 14611 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $24 million in RFL’s case. Spok Holdings Inc (NASDAQ:SPOK) is the most popular stock in this table. On the other hand Exagen Inc. (NASDAQ:XGN) is the least popular one with only 1 bullish hedge fund positions. Rafael Holdings, Inc. (NYSE:RFL) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on RFL as the stock returned 35% during the second quarter and outperformed the market by an even larger margin.

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