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 Itamar Medical Ltd. (NASDAQ:ITMR).
Is ITMR a good stock to buy now? Prominent investors were taking a pessimistic view. The number of bullish hedge fund positions dropped by 1 in recent months. Itamar Medical Ltd. (NASDAQ:ITMR) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that ITMR 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.
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 look at the new hedge fund action encompassing Itamar Medical Ltd. (NASDAQ:ITMR).
Do Hedge Funds Think ITMR Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in ITMR a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Redmile Group was the largest shareholder of Itamar Medical Ltd. (NASDAQ:ITMR), with a stake worth $12.7 million reported as of the end of September. Trailing Redmile Group was Deerfield Management, which amassed a stake valued at $10.2 million. Parkman Healthcare Partners, Pura Vida Investments, and Soleus 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 Soleus Capital allocated the biggest weight to Itamar Medical Ltd. (NASDAQ:ITMR), around 1.52% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, dishing out 1.52 percent of its 13F equity portfolio to ITMR.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ITMR as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks similar to Itamar Medical Ltd. (NASDAQ:ITMR). We will take a look at Biglari Holdings Inc (NYSE:BH), Heritage Insurance Holdings Inc (NYSE:HRTG), SunCoke Energy, Inc (NYSE:SXC), Digimarc Corp (NASDAQ:DMRC), Paysign, Inc. (NASDAQ:PAYS), TravelCenters of America Inc. (NASDAQ:TA), and Microvision, Inc. (NASDAQ:MVIS). This group of stocks’ market caps match ITMR’s market cap.
|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 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $39 million in ITMR’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand Microvision, Inc. (NASDAQ:MVIS) is the least popular one with only 2 bullish hedge fund positions. Itamar Medical Ltd. (NASDAQ:ITMR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITMR is 51.6. 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 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately ITMR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ITMR investors were disappointed as the stock returned -4.6% since the end of September (through 12/8) 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.