How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Harrow Health, Inc. (NASDAQ:HROW).
Is HROW a good stock to buy now? Harrow Health, Inc. (NASDAQ:HROW) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Harrow Health, Inc. (NASDAQ:HROW) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HROW 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.
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 go over the fresh hedge fund action regarding Harrow Health, Inc. (NASDAQ:HROW).
Do Hedge Funds Think HROW Is A Good Stock To Buy Now?
At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in HROW a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Opaleye Management held the most valuable stake in Harrow Health, Inc. (NASDAQ:HROW), which was worth $16.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $7.5 million worth of shares. Ikarian Capital, Sio Capital, and Diametric Capital 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 Opaleye Management allocated the biggest weight to Harrow Health, Inc. (NASDAQ:HROW), around 3.23% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, designating 0.95 percent of its 13F equity portfolio to HROW.
Consequently, some big names were leading the bulls’ herd. Ikarian Capital, managed by Neil Shahrestani, created the most valuable position in Harrow Health, Inc. (NASDAQ:HROW). Ikarian Capital had $2.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.6 million position during the quarter. The other funds with brand new HROW positions are Blair Baker’s Precept Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Roger Ibbotson’s Zebra Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Harrow Health, Inc. (NASDAQ:HROW) but similarly valued. We will take a look at Richmond Mutual Bancorporation, Inc. (NASDAQ:RMBI), Postal Realty Trust, Inc. (NYSE:PSTL), GTY Technology Holdings, Inc. (NASDAQ:GTYH), AudioEye, Inc. (NASDAQ:AEYE), Parke Bancorp, Inc. (NASDAQ:PKBK), Golar LNG Partners LP (NASDAQ:GMLP), and Servicesource International Inc (NASDAQ:SREV). This group of stocks’ market valuations match HROW’s market valuation.
|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 6.1 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $33 million in HROW’s case. Servicesource International Inc (NASDAQ:SREV) is the most popular stock in this table. On the other hand Parke Bancorp, Inc. (NASDAQ:PKBK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Harrow Health, Inc. (NASDAQ:HROW) is more popular among hedge funds. Our overall hedge fund sentiment score for HROW is 90. 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 December 14th and still beat the market by 15.8 percentage points. Unfortunately HROW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HROW were disappointed as the stock returned -1.1% since the end of the third quarter (through 12/14) 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.
Disclosure: None. This article was originally published at Insider Monkey.