Is ALDX A Good Stock To Buy Now?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Aldeyra Therapeutics Inc (NASDAQ:ALDX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is ALDX a good stock to buy now? Investors who are in the know were becoming less confident. The number of long hedge fund positions were trimmed by 2 recently. Aldeyra Therapeutics Inc (NASDAQ:ALDX) was in 17 hedge funds’ portfolios at the end of September. The all time high for this statistic is 19. Our calculations also showed that ALDX 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).

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

Today there are dozens of formulas market participants employ to analyze their stock investments. Some of the most underrated formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can beat their index-focused peers by a healthy amount (see the details here).

Joseph Edelman of Perceptive Advisors

Joseph Edelman of Perceptive Advisors

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. With all of this in mind let’s go over the latest hedge fund action surrounding Aldeyra Therapeutics Inc (NASDAQ:ALDX).

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

At the end of September, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALDX over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Perceptive Advisors held the most valuable stake in Aldeyra Therapeutics Inc (NASDAQ:ALDX), which was worth $46.6 million at the end of the third quarter. On the second spot was Acuta Capital Partners which amassed $12.2 million worth of shares. Ghost Tree Capital, Prosight Capital, and Citadel Investment Group 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 Prosight Capital allocated the biggest weight to Aldeyra Therapeutics Inc (NASDAQ:ALDX), around 3.85% of its 13F portfolio. Knoll Capital Management is also relatively very bullish on the stock, dishing out 3.46 percent of its 13F equity portfolio to ALDX.

Because Aldeyra Therapeutics Inc (NASDAQ:ALDX) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds who sold off their entire stakes last quarter. Intriguingly, Donald Sussman’s Paloma Partners said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $0.5 million in stock. Renaissance Technologies, also said goodbye to its stock, about $0.3 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Aldeyra Therapeutics Inc (NASDAQ:ALDX) but similarly valued. We will take a look at Orphazyme A/S (NASDAQ:ORPH), Sunlands Technology Group (NYSE:STG), Landec Corporation (NASDAQ:LNDC), Itamar Medical Ltd. (NASDAQ:ITMR), Biglari Holdings Inc (NYSE:BH), Heritage Insurance Holdings Inc (NYSE:HRTG), and SunCoke Energy, Inc (NYSE:SXC). This group of stocks’ market valuations are similar to ALDX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORPH 5 20668 5
STG 1 131 -1
LNDC 14 74381 -1
ITMR 9 38617 -1
BH 9 26358 -3
HRTG 11 29862 -1
SXC 19 61420 0
Average 9.7 35920 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.7 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $103 million in ALDX’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand Sunlands Technology Group (NYSE:STG) is the least popular one with only 1 bullish hedge fund positions. Aldeyra Therapeutics Inc (NASDAQ:ALDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALDX is 74.3. 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 ALDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALDX were disappointed as the stock returned -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.

Follow Aldeyra Therapeutics Inc. (NASDAQ:ALDX)

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