Is Graybug Vision (GRAY) A Good Stock To Buy Now?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Graybug Vision, Inc. (NASDAQ:GRAY).

Is Graybug Vision (GRAY) a good stock to buy now? The smart money was in an optimistic mood. The number of bullish hedge fund positions went up by 10 lately. Graybug Vision, Inc. (NASDAQ:GRAY) was in 10 hedge funds’ portfolios at the end of September. Our calculations also showed that GRAY 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.

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 let’s take a gander at the latest hedge fund action regarding Graybug Vision, Inc. (NASDAQ:GRAY).

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

At third quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10 from the second quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in GRAY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GRAY A Good Stock To Buy?

The largest stake in Graybug Vision, Inc. (NASDAQ:GRAY) was held by Deerfield Management, which reported holding $67.1 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $56.9 million position. Other investors bullish on the company included Citadel Investment Group, Nantahala Capital Management, and Suvretta Capital Management. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Graybug Vision, Inc. (NASDAQ:GRAY), around 1.63% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, earmarking 0.72 percent of its 13F equity portfolio to GRAY.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Deerfield Management, managed by James E. Flynn, initiated the most valuable position in Graybug Vision, Inc. (NASDAQ:GRAY). Deerfield Management had $67.1 million invested in the company at the end of the quarter. OrbiMed Advisors also initiated a $56.9 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, and Aaron Cowen’s Suvretta Capital Management.

Let’s go over hedge fund activity in other stocks similar to Graybug Vision, Inc. (NASDAQ:GRAY). These stocks are Sierra Bancorp (NASDAQ:BSRR), W&T Offshore, Inc. (NYSE:WTI), MOGU Inc. (NYSE:MOGU), Limoneira Company (NASDAQ:LMNR), Denison Mines Corp (NYSE:DNN), Whitestone REIT (NYSE:WSR), and Liquidity Services, Inc. (NASDAQ:LQDT). This group of stocks’ market valuations are closest to GRAY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSRR 9 9163 0
WTI 8 12428 -7
MOGU 6 29948 4
LMNR 2 679 -3
DNN 6 4815 2
WSR 8 9493 -1
LQDT 14 26500 5
Average 7.6 13289 0

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 $13 million. That figure was $137 million in GRAY’s case. Liquidity Services, Inc. (NASDAQ:LQDT) is the most popular stock in this table. On the other hand Limoneira Company (NASDAQ:LMNR) is the least popular one with only 2 bullish hedge fund positions. Graybug Vision, Inc. (NASDAQ:GRAY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GRAY is 63.3. 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 gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on GRAY as the stock returned 86.2% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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