Is ADCT A Good Stock To Buy Now?

In this article we will take a look at whether hedge funds think ADC Therapeutics SA (NYSE:ADCT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is ADC Therapeutics SA (NYSE:ADCT) ready to rally soon? The smart money was in an optimistic mood. The number of long hedge fund bets inched up by 4 recently. ADC Therapeutics SA (NYSE:ADCT) was in 19 hedge funds’ portfolios at the end of September. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ADCT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 15 hedge funds in our database with ADCT holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most market participants, hedge funds are seen as underperforming, old financial tools of the past. While there are more than 8000 funds with their doors open at the moment, Our experts hone in on the moguls of this club, around 850 funds. Most estimates calculate that this group of people oversee most of the hedge fund industry’s total asset base, and by tracking their top stock picks, Insider Monkey has found a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we’re going to take a peek at the recent hedge fund action encompassing ADC Therapeutics SA (NYSE:ADCT).

Do Hedge Funds Think ADCT Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in ADCT over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Redmile Group held the most valuable stake in ADC Therapeutics SA (NYSE:ADCT), which was worth $209.6 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $55.7 million worth of shares. Magnetar Capital, Hillhouse Capital Management, 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 Redmile Group allocated the biggest weight to ADC Therapeutics SA (NYSE:ADCT), around 3.85% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, earmarking 3.51 percent of its 13F equity portfolio to ADCT.

As one would reasonably expect, key money managers have jumped into ADC Therapeutics SA (NYSE:ADCT) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in ADC Therapeutics SA (NYSE:ADCT). Marshall Wace LLP had $6.5 million invested in the company at the end of the quarter. Joseph Samuels’s Islet Management also initiated a $6.2 million position during the quarter. The other funds with brand new ADCT positions are Jeffrey Talpins’s Element Capital Management, Paul Tudor Jones’s Tudor Investment Corp, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to ADC Therapeutics SA (NYSE:ADCT). We will take a look at DCP Midstream LP (NYSE:DCP), Patterson Companies, Inc. (NASDAQ:PDCO), ViaSat, Inc. (NASDAQ:VSAT), Cushman & Wakefield plc (NYSE:CWK), Avista Corp (NYSE:AVA), Fabrinet (NYSE:FN), and Trinity Industries, Inc. (NYSE:TRN). This group of stocks’ market values are closest to ADCT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCP 3 5523 1
PDCO 18 82656 -4
VSAT 30 907647 7
CWK 12 87064 -5
AVA 20 74564 -1
FN 17 74880 -6
TRN 23 766000 -2
Average 17.6 285476 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $385 million in ADCT’s case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 3 bullish hedge fund positions. ADC Therapeutics SA (NYSE:ADCT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADCT is 68.6. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately ADCT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ADCT were disappointed as the stock returned 3.8% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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