In this article we are going to use hedge fund sentiment as a tool and determine whether Baudax Bio, Inc. (NASDAQ:BXRX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is BXRX a good stock to buy now? Money managers were taking a bearish view. The number of long hedge fund bets retreated by 3 in recent months. Baudax Bio, Inc. (NASDAQ:BXRX) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that BXRX 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 check out the key hedge fund action regarding Baudax Bio, Inc. (NASDAQ:BXRX).
What have hedge funds been doing with Baudax Bio, Inc. (NASDAQ:BXRX)?
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BXRX over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, North Run Capital held the most valuable stake in Baudax Bio, Inc. (NASDAQ:BXRX), which was worth $2.8 million at the end of the third quarter. On the second spot was Corsair Capital Management which amassed $1.2 million worth of shares. Arrowstreet Capital, Ikarian Capital, and Millennium Management 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 North Run Capital allocated the biggest weight to Baudax Bio, Inc. (NASDAQ:BXRX), around 3.23% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, setting aside 0.43 percent of its 13F equity portfolio to BXRX.
Judging by the fact that Baudax Bio, Inc. (NASDAQ:BXRX) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers who were dropping their positions entirely in the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners cut the largest stake of all the hedgies monitored by Insider Monkey, totaling an estimated $0.2 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $0.1 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Baudax Bio, Inc. (NASDAQ:BXRX) but similarly valued. We will take a look at Atlas Technical Consultants, Inc. (NASDAQ:ATCX), Trxade Group, Inc. (NASDAQ:MEDS), Moleculin Biotech, Inc. (NASDAQ:MBRX), IF Bancorp Inc (NASDAQ:IROQ), Kazia Therapeutics Limited (NASDAQ:KZIA), Synalloy Corporation (NASDAQ:SYNL), and Seelos Therapeutics, Inc. (NASDAQ:SEEL). All of these stocks’ market caps are similar to BXRX’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 3.6 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $5 million in BXRX’s case. Atlas Technical Consultants, Inc. (NASDAQ:ATCX) is the most popular stock in this table. On the other hand Kazia Therapeutics Limited (NASDAQ:KZIA) is the least popular one with only 1 bullish hedge fund positions. Baudax Bio, Inc. (NASDAQ:BXRX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BXRX is 58.6. 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 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately BXRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BXRX were disappointed as the stock returned -59.6% since the end of September (through 12/2) 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.
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Disclosure: None. This article was originally published at Insider Monkey.