Is Generation Bio (GBIO) A Good Stock To Buy Now?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Generation Bio Co. (NASDAQ:GBIO).

Is Generation Bio (GBIO) a good stock to buy now? Prominent investors were cutting their exposure. The number of long hedge fund bets were trimmed by 8 lately. Generation Bio Co. (NASDAQ:GBIO) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that GBIO 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

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. With all of this in mind we’re going to take a peek at the latest hedge fund action surrounding Generation Bio Co. (NASDAQ:GBIO).

What have hedge funds been doing with Generation Bio Co. (NASDAQ:GBIO)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -57% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GBIO over the last 21 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Generation Bio Co. (NASDAQ:GBIO) was held by Farallon Capital, which reported holding $65.5 million worth of stock at the end of September. It was followed by Casdin Capital with a $49.8 million position. Other investors bullish on the company included Deerfield Management, Harvard Management Co, and Sectoral Asset Management. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Generation Bio Co. (NASDAQ:GBIO), around 2.23% of its 13F portfolio. Harvard Management Co is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to GBIO.

Due to the fact that Generation Bio Co. (NASDAQ:GBIO) has experienced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Arsani William’s Logos Capital dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth about $6.8 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $5.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 8 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Generation Bio Co. (NASDAQ:GBIO) but similarly valued. These stocks are McGrath RentCorp (NASDAQ:MGRC), Niu Technologies (NASDAQ:NIU), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), RLJ Lodging Trust (NYSE:RLJ), Azure Power Global Limited (NYSE:AZRE), Industrial Logistics Properties Trust (NASDAQ:ILPT), and The Michaels Companies Inc (NASDAQ:MIK). All of these stocks’ market caps match GBIO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGRC 19 74851 -3
NIU 14 102293 6
SBGI 20 257239 -4
RLJ 15 79610 -3
AZRE 4 14828 1
ILPT 9 16849 0
MIK 38 285583 17
Average 17 118750 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $162 million in GBIO’s case. Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand Azure Power Global Limited (NYSE:AZRE) is the least popular one with only 4 bullish hedge fund positions. Generation Bio Co. (NASDAQ:GBIO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GBIO is 12.8. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on GBIO as the stock returned 40% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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