Is Avid Bioservices, Inc. (CDMO) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Avid Bioservices, Inc. (NASDAQ:CDMO) and determine whether hedge funds had an edge regarding this stock.

Is Avid Bioservices, Inc. (NASDAQ:CDMO) going to take off soon? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets were trimmed by 6 lately. Our calculations also showed that CDMO 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).

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

To the average investor there are many formulas market participants have at their disposal to analyze their stock investments. Some of the most innovative formulas are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best fund managers can outperform the S&P 500 by a solid amount (see the details here).

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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 analyze the key hedge fund action surrounding Avid Bioservices, Inc. (NASDAQ:CDMO).

What have hedge funds been doing with Avid Bioservices, Inc. (NASDAQ:CDMO)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the fourth quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in CDMO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Iszo Capital was the largest shareholder of Avid Bioservices, Inc. (NASDAQ:CDMO), with a stake worth $28.9 million reported as of the end of September. Trailing Iszo Capital was AltraVue Capital, which amassed a stake valued at $10 million. Millennium Management, Royce & Associates, and Renaissance Technologies 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 Iszo Capital allocated the biggest weight to Avid Bioservices, Inc. (NASDAQ:CDMO), around 44.24% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, designating 8.23 percent of its 13F equity portfolio to CDMO.

Judging by the fact that Avid Bioservices, Inc. (NASDAQ:CDMO) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers who sold off their entire stakes by the end of the first quarter. Interestingly, Greg Martinez’s Parkman Healthcare Partners said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $1.1 million in stock. David Harding’s fund, Winton Capital Management, also dumped its stock, about $0.4 million worth. These moves are interesting, as total hedge fund interest dropped by 6 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Avid Bioservices, Inc. (NASDAQ:CDMO). These stocks are Inc. (NYSE:CARS), HBT Financial, Inc. (NASDAQ:HBT), TherapeuticsMD Inc (NASDAQ:TXMD), and Pivotal Investment Corporation II (NYSE:PIC). This group of stocks’ market valuations are closest to CDMO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CARS 24 67845 -10
HBT 7 7919 -3
TXMD 9 19669 -9
PIC 12 56180 -3
Average 13 37903 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $46 million in CDMO’s case. Inc. (NYSE:CARS) is the most popular stock in this table. On the other hand HBT Financial, Inc. (NASDAQ:HBT) is the least popular one with only 7 bullish hedge fund positions. Avid Bioservices, Inc. (NASDAQ:CDMO) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on CDMO as the stock returned 28.6% during the second quarter and outperformed the market by an even larger margin.

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