Is BDSI A Good Stock To Buy?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards BioDelivery Sciences International, Inc. (NASDAQ:BDSI).

Is BDSI a good stock to buy now? BioDelivery Sciences International, Inc. (NASDAQ:BDSI) investors should be aware of a decrease in hedge fund sentiment of late. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that BDSI 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.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

James Flynn Deerfield Management

James E. Flynn of Deerfield 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 let’s take a look at the new hedge fund action surrounding BioDelivery Sciences International, Inc. (NASDAQ:BDSI).

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

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in BDSI over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in BioDelivery Sciences International, Inc. (NASDAQ:BDSI) was held by Deerfield Management, which reported holding $28.5 million worth of stock at the end of September. It was followed by Nantahala Capital Management with a $18.9 million position. Other investors bullish on the company included Rubric Capital Management, Adage Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Rubric Capital Management allocated the biggest weight to BioDelivery Sciences International, Inc. (NASDAQ:BDSI), around 1.39% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, earmarking 1.05 percent of its 13F equity portfolio to BDSI.

Seeing as BioDelivery Sciences International, Inc. (NASDAQ:BDSI) has faced bearish sentiment from the smart money, it’s easy to see that there was a specific group of money managers who sold off their entire stakes last quarter. Interestingly, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) dropped the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $8.9 million in stock, and Kamran Moghtaderi’s Eversept Partners was right behind this move, as the fund sold off about $2.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as BioDelivery Sciences International, Inc. (NASDAQ:BDSI) but similarly valued. These stocks are Avid Technology, Inc. (NASDAQ:AVID), VirnetX Holding Corporation (NYSE:VHC), Resources Connection, Inc. (NASDAQ:RGP), TransMedics Group, Inc. (NASDAQ:TMDX), Dime Community Bancshares, Inc. (NASDAQ:DCOM), Thermon Group Holdings, Inc. (NYSE:THR), and Kamada Ltd (NASDAQ:KMDA). This group of stocks’ market valuations match BDSI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVID 19 124431 2
VHC 5 10446 -1
RGP 15 46723 2
TMDX 7 58282 1
DCOM 11 38220 -2
THR 14 24686 2
KMDA 6 13143 4
Average 11 45133 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $88 million in BDSI’s case. Avid Technology, Inc. (NASDAQ:AVID) is the most popular stock in this table. On the other hand VirnetX Holding Corporation (NYSE:VHC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is more popular among hedge funds. Our overall hedge fund sentiment score for BDSI is 73.3. 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. 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on BDSI as the stock returned 18% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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