Is Ayala Pharmaceuticals, Inc. (AYLA) A Good Stock To Buy?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) to find out whether there were any major changes in hedge funds’ views.

Is Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) a bargain? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions fell by 1 recently. Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 4. Our calculations also showed that AYLA 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 4 hedge funds in our database with AYLA holdings at the end of June.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Michael Castor of Sio Capital

Michael Castor of Sio Capital

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 10 most profitable companies in the world 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 review the fresh hedge fund action surrounding Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA).

How are hedge funds trading Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA)?

Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in AYLA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Redmile Group held the most valuable stake in Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA), which was worth $7.9 million at the end of the third quarter. On the second spot was Sio Capital which amassed $1.8 million worth of shares. Millennium Management was 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 Sio Capital allocated the biggest weight to Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA), around 0.36% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to AYLA.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zimmer Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified AYLA as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks similar to Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA). We will take a look at Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), BioSig Technologies, Inc. (NASDAQ:BSGM), ContraFect Corp (NASDAQ:CFRX), BiomX Inc. (NYSE:PHGE), GlycoMimetics, Inc. (NASDAQ:GLYC), NewHold Investment Corp. (NASDAQ:NHIC), and Natural Resource Partners LP (NYSE:NRP). This group of stocks’ market values are similar to AYLA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRBP 8 16655 -6
BSGM 3 294 0
CFRX 11 22007 1
PHGE 6 17882 -1
GLYC 12 45240 -2
NHIC 11 43710 11
NRP 2 6814 0
Average 7.6 21800 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.6 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $10 million in AYLA’s case. GlycoMimetics, Inc. (NASDAQ:GLYC) is the most popular stock in this table. On the other hand Natural Resource Partners LP (NYSE:NRP) is the least popular one with only 2 bullish hedge fund positions. Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AYLA is 31.5. 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 28.1% in 2020 through November 23rd and surpassed the market again by 15.4 percentage points. Unfortunately AYLA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AYLA investors were disappointed as the stock returned -10.7% since the end of September (through 11/23) 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.

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