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 Avid Bioservices, Inc. (NASDAQ:CDMO).
Hedge fund interest in Avid Bioservices, Inc. (NASDAQ:CDMO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CDMO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WestAmerica Bancorp. (NASDAQ:WABC), Lakeland Financial Corporation (NASDAQ:LKFN), and Mack Cali Realty Corp (NYSE:CLI) to gather more data points.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 take a look at the fresh hedge fund action regarding Avid Bioservices, Inc. (NASDAQ:CDMO).
Do Hedge Funds Think CDMO Is A Good Stock To Buy Now?
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CDMO over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Iszo Capital, managed by Brian Sheehy, holds the biggest position in Avid Bioservices, Inc. (NASDAQ:CDMO). Iszo Capital has a $60.2 million position in the stock, comprising 21.9% of its 13F portfolio. The second most bullish fund manager is Driehaus Capital, managed by Richard Driehaus, which holds a $31.8 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Touk Sinantha’s AltraVue Capital, Greg Martinez’s Parkman Healthcare Partners and George McCabe’s Portolan Capital Management. In terms of the portfolio weights assigned to each position Iszo Capital allocated the biggest weight to Avid Bioservices, Inc. (NASDAQ:CDMO), around 21.86% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, earmarking 10.82 percent of its 13F equity portfolio to CDMO.
Due to the fact that Avid Bioservices, Inc. (NASDAQ:CDMO) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes in the second quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $1.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Avid Bioservices, Inc. (NASDAQ:CDMO) but similarly valued. These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Lakeland Financial Corporation (NASDAQ:LKFN), Mack Cali Realty Corp (NYSE:CLI), SecureWorks Corp. (NASDAQ:SCWX), Oceaneering International (NYSE:OII), nLIGHT, Inc. (NASDAQ:LASR), and Horace Mann Educators Corporation (NYSE:HMN). This group of stocks’ market values are closest to CDMO’s market value.
|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 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $191 million in CDMO’s case. Mack Cali Realty Corp (NYSE:CLI) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Avid Bioservices, Inc. (NASDAQ:CDMO) is more popular among hedge funds. Our overall hedge fund sentiment score for CDMO is 80.2. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately CDMO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CDMO were disappointed as the stock returned 1.4% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
Follow Avid Bioservices Inc. (NASDAQ:CDMO)
Follow Avid Bioservices Inc. (NASDAQ:CDMO)
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Disclosure: None. This article was originally published at Insider Monkey.