In this article we will check out the progression of hedge fund sentiment towards Avita Medical Limited (NASDAQ:RCEL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Avita Medical (RCEL) a good stock to buy now? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets inched up by 3 lately. Avita Medical Limited (NASDAQ:RCEL) was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 3. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RCEL 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 2 hedge funds in our database with RCEL holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Keeping this in mind let’s take a gander at the latest hedge fund action regarding Avita Medical Limited (NASDAQ:RCEL).
How have hedgies been trading Avita Medical Limited (NASDAQ:RCEL)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 150% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in RCEL over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Avita Medical Limited (NASDAQ:RCEL) was held by Redmile Group, which reported holding $44.8 million worth of stock at the end of September. It was followed by Blackcrane Capital with a $12 million position. Other investors bullish on the company included Renaissance Technologies, Paloma Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Blackcrane Capital allocated the biggest weight to Avita Medical Limited (NASDAQ:RCEL), around 27.88% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, designating 0.82 percent of its 13F equity portfolio to RCEL.
Consequently, some big names have jumped into Avita Medical Limited (NASDAQ:RCEL) headfirst. Redmile Group, managed by Jeremy Green, created the most valuable position in Avita Medical Limited (NASDAQ:RCEL). Redmile Group had $44.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $0.7 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks similar to Avita Medical Limited (NASDAQ:RCEL). We will take a look at Tanger Factory Outlet Centers Inc. (NYSE:SKT), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Apogee Enterprises, Inc. (NASDAQ:APOG), Crossamerica Partners LP (NYSE:CAPL), Aurora Cannabis Inc. (NASDAQ:ACB), FinVolution Group (NYSE:FINV), and Ribbon Communications Inc. (NASDAQ:RBBN). All of these stocks’ market caps resemble RCEL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.4 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $60 million in RCEL’s case. Playa Hotels & Resorts N.V. (NASDAQ:PLYA) is the most popular stock in this table. On the other hand Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 1 bullish hedge fund positions. Avita Medical Limited (NASDAQ:RCEL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RCEL is 51.3. 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 negative signal and 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 November 27th and surpassed the market again by 16.1 percentage points. Unfortunately RCEL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RCEL investors were disappointed as the stock returned -8.7% since the end of September (through 11/27) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.