Is CERC A Good Stock To Buy Now?

Is Cerecor Inc. (NASDAQ:CERC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is CERC a good stock to buy now? Cerecor Inc. (NASDAQ:CERC) investors should pay attention to a decrease in support from the world’s most elite money managers recently. Cerecor Inc. (NASDAQ:CERC) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistics is 11. Our calculations also showed that CERC 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.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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. With all of this in mind let’s review the recent hedge fund action regarding Cerecor Inc. (NASDAQ:CERC).

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

Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CERC over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Armistice Capital held the most valuable stake in Cerecor Inc. (NASDAQ:CERC), which was worth $68.3 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $13.2 million worth of shares. Opaleye Management, Sio Capital, and Two Sigma Advisors 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 Armistice Capital allocated the biggest weight to Cerecor Inc. (NASDAQ:CERC), around 2.48% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, dishing out 1.5 percent of its 13F equity portfolio to CERC.

Due to the fact that Cerecor Inc. (NASDAQ:CERC) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their full holdings in the third quarter. Intriguingly, Timothy P. Lynch’s Stonepine Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, valued at about $1.2 million in stock. Nathan Fischel’s fund, DAFNA Capital Management, also sold off its stock, about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Cerecor Inc. (NASDAQ:CERC). We will take a look at Five Prime Therapeutics Inc (NASDAQ:FPRX), Sientra Inc (NASDAQ:SIEN), Acacia Research Corporation (NASDAQ:ACTG), Castlight Health Inc (NYSE:CSLT), PICO Holdings Inc (NASDAQ:PICO), Stellus Capital Investment Corporation (NYSE:SCM), and Telenav Inc (NASDAQ:TNAV). All of these stocks’ market caps are similar to CERC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FPRX 19 60632 0
SIEN 11 26348 2
ACTG 12 23771 -2
CSLT 14 26703 -4
PICO 10 22333 -3
SCM 6 4400 0
TNAV 11 31469 1
Average 11.9 27951 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $94 million in CERC’s case. Five Prime Therapeutics Inc (NASDAQ:FPRX) is the most popular stock in this table. On the other hand Stellus Capital Investment Corporation (NYSE:SCM) is the least popular one with only 6 bullish hedge fund positions. Cerecor Inc. (NASDAQ:CERC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CERC is 39.1. 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 gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CERC as the stock returned 17.4% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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