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HEXO Corp. (HEXO): Hedge Funds Are Nibbling

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 HEXO Corp. (NYSE:HEXO).

Is HEXO Corp. (NYSE:HEXO) undervalued? Money managers are taking an optimistic view. The number of long hedge fund positions moved up by 1 recently. Our calculations also showed that HEXO 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). HEXO was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 6 hedge funds in our database with HEXO positions 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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. With all of this in mind let’s view the key hedge fund action regarding HEXO Corp. (NYSE:HEXO).

How have hedgies been trading HEXO Corp. (NYSE:HEXO)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the fourth quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in HEXO a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the largest position in HEXO Corp. (NYSE:HEXO). Renaissance Technologies has a $0.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $0.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Daniel S. Och’s OZ Management. In terms of the portfolio weights assigned to each position Paloma Partners allocated the biggest weight to HEXO Corp. (NYSE:HEXO), around 0.0006% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, designating 0.0005 percent of its 13F equity portfolio to HEXO.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Paloma Partners, managed by Donald Sussman, established the most outsized position in HEXO Corp. (NYSE:HEXO). Paloma Partners had $0 million invested in the company at the end of the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as HEXO Corp. (NYSE:HEXO) but similarly valued. We will take a look at Territorial Bancorp Inc (NASDAQ:TBNK), Motorcar Parts of America, Inc. (NASDAQ:MPAA), Majesco (NASDAQ:MJCO), and Geron Corporation (NASDAQ:GERN). This group of stocks’ market caps resemble HEXO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TBNK 4 20232 0
MPAA 6 44768 1
MJCO 1 63 0
GERN 3 1186 -1
Average 3.5 16562 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $1 million in HEXO’s case. Motorcar Parts of America, Inc. (NASDAQ:MPAA) is the most popular stock in this table. On the other hand Majesco (NASDAQ:MJCO) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks HEXO Corp. (NYSE:HEXO) 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. Unfortunately HEXO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HEXO were disappointed as the stock returned 20.7% during the second quarter (through June 10th) 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.

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