While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding DermTech, Inc. (NASDAQ:DMTK).
Is DermTech (DMTK) a good stock to buy now? DMTK investors should pay attention to a decrease in hedge fund sentiment of late. DermTech, Inc. (NASDAQ:DMTK) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. There were 7 hedge funds in our database with DMTK positions at the end of the second quarter. Our calculations also showed that DMTK 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.
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. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing DermTech, Inc. (NASDAQ:DMTK).
How have hedgies been trading DermTech, Inc. (NASDAQ:DMTK)?
At third quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DMTK over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in DermTech, Inc. (NASDAQ:DMTK) was held by Casdin Capital, which reported holding $17.1 million worth of stock at the end of September. It was followed by Farallon Capital with a $14.6 million position. Other investors bullish on the company included Pura Vida Investments, BlueCrest Capital Mgmt., and Granite Point Capital. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to DermTech, Inc. (NASDAQ:DMTK), around 0.76% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to DMTK.
Because DermTech, Inc. (NASDAQ:DMTK) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies that slashed their positions entirely heading into Q4. It’s worth mentioning that Joseph Edelman’s Perceptive Advisors cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $6.4 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also dropped its stock, about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to DermTech, Inc. (NASDAQ:DMTK). We will take a look at Larimar Therapeutics, Inc. (NASDAQ:LRMR), Adicet Bio Inc. (NASDAQ:ACET), MediciNova, Inc. (NASDAQ:MNOV), Silicom Ltd. (NASDAQ:SILC), Metropolitan Bank Holding Corp. (NYSE:MCB), Orion Energy Systems, Inc. (NYSE:OESX), and The ExOne Company (NASDAQ:XONE). All of these stocks’ market caps are closest to DMTK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LRMR | 17 | 167530 | -1 |
| ACET | 7 | 89750 | 7 |
| MNOV | 5 | 2263 | 1 |
| SILC | 5 | 7269 | 0 |
| MCB | 7 | 41108 | 0 |
| OESX | 7 | 25463 | 1 |
| XONE | 5 | 3869 | 3 |
| Average | 7.6 | 48179 | 1.6 |
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 $48 million. That figure was $38 million in DMTK’s case. Larimar Therapeutics, Inc. (NASDAQ:LRMR) is the most popular stock in this table. On the other hand MediciNova, Inc. (NASDAQ:MNOV) is the least popular one with only 5 bullish hedge fund positions. DermTech, Inc. (NASDAQ:DMTK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DMTK is 28.2. 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 DMTK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DMTK investors were disappointed as the stock returned 6.1% 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.
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Disclosure: None. This article was originally published at Insider Monkey.
