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). 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 Neos Therapeutics Inc (NASDAQ:NEOS) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Neos Therapeutics Inc (NASDAQ:NEOS) a great investment today? The smart money was turning bullish. The number of bullish hedge fund positions rose by 3 recently. Our calculations also showed that NEOS 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). NEOS was in 10 hedge funds’ portfolios at the end of March. There were 7 hedge funds in our database with NEOS holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the key hedge fund action surrounding Neos Therapeutics Inc (NASDAQ:NEOS).
Hedge fund activity in Neos Therapeutics Inc (NASDAQ:NEOS)
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEOS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Stonepine Capital was the largest shareholder of Neos Therapeutics Inc (NASDAQ:NEOS), with a stake worth $3.5 million reported as of the end of September. Trailing Stonepine Capital was Nantahala Capital Management, which amassed a stake valued at $3.5 million. Sphera Global Healthcare Fund, Renaissance Technologies, and Deerfield 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 Stonepine Capital allocated the biggest weight to Neos Therapeutics Inc (NASDAQ:NEOS), around 3.72% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, earmarking 0.43 percent of its 13F equity portfolio to NEOS.
Now, key money managers have been driving this bullishness. Stonepine Capital, managed by Timothy P. Lynch, assembled the most outsized position in Neos Therapeutics Inc (NASDAQ:NEOS). Stonepine Capital had $3.5 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also initiated a $1.9 million position during the quarter. The only other fund with a brand new NEOS position is Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks similar to Neos Therapeutics Inc (NASDAQ:NEOS). We will take a look at Entera Bio Ltd. (NASDAQ:ENTX), Natural Health Trends Corp. (NASDAQ:NHTC), Ark Restaurants Corp. (NASDAQ:ARKR), and A. H. Belo Corporation (NYSE:AHC). This group of stocks’ market values match NEOS’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 3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $10 million in NEOS’s case. A. H. Belo Corporation (NYSE:AHC) is the most popular stock in this table. On the other hand Ark Restaurants Corp. (NASDAQ:ARKR) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Neos Therapeutics Inc (NASDAQ:NEOS) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately NEOS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NEOS were disappointed as the stock returned -8.7% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.