Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Intrexon Corp (NYSE:XON) a safe stock to buy now? The smart money is certainly taking a bearish view. The number of long hedge fund investments suffered a reduction of 6 in recent months. XON was in 10 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with XON positions at the end of the previous quarter. At the end of this article we will also compare XON to other stocks including Tempur-Pedic International Inc. (NYSE:TPX), Molina Healthcare, Inc. (NYSE:MOH), and Umpqua Holdings Corp (NASDAQ:UMPQ) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Now, let’s check out the key action surrounding Intrexon Corp (NYSE:XON).
How have hedgies been trading Intrexon Corp (NYSE:XON)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in XON heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Iridian Asset Management, led by David Cohen and Harold Levy, holds the most valuable position in Intrexon Corp (NYSE:XON). Iridian Asset Management has a $111.7 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $31.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions comprise Ken Griffin’s Citadel Investment Group, D E Shaw, one of the biggest hedge funds in the world and Principal Global Investors’s Columbus Circle Investors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually sold off their positions entirely. At the top of the heap, First Eagle Investment Management sold off the largest stake of all the hedgies studied by Insider Monkey, worth about $27.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its call options, about $3.7 million worth.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Intrexon Corp (NYSE:XON) but similarly valued. These stocks are Tempur-Pedic International Inc. (NYSE:TPX), Molina Healthcare, Inc. (NYSE:MOH), Umpqua Holdings Corp (NASDAQ:UMPQ), and Pandora Media Inc (NYSE:P). This group of stocks’ market caps are similar to XON’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $869 million. That figure was $158 million in XON’s case. Pandora Media Inc (NYSE:P) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Intrexon Corp (NYSE:XON) is even less popular than UMPQ. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.