Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Keros Therapeutics, Inc. (NASDAQ:KROS).
Is KROS a good stock to buy now? The smart money was taking a bearish view. The number of bullish hedge fund positions dropped by 3 lately. Keros Therapeutics, Inc. (NASDAQ:KROS) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that KROS 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 was 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’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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Now we’re going to go over the recent hedge fund action regarding Keros Therapeutics, Inc. (NASDAQ:KROS).
What does smart money think about Keros Therapeutics, Inc. (NASDAQ:KROS)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in KROS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Keros Therapeutics, Inc. (NASDAQ:KROS) was held by RA Capital Management, which reported holding $72.3 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $64.8 million position. Other investors bullish on the company included Logos Capital, Nantahala Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to Keros Therapeutics, Inc. (NASDAQ:KROS), around 8.15% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to KROS.
Judging by the fact that Keros Therapeutics, Inc. (NASDAQ:KROS) has faced a decline in interest from the smart money, it’s safe to say that there were a few money managers that decided to sell off their entire stakes in the third quarter. Intriguingly, James E. Flynn’s Deerfield Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $11.3 million in stock. Oleg Nodelman’s fund, EcoR1 Capital, also dropped its stock, about $8.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Keros Therapeutics, Inc. (NASDAQ:KROS) but similarly valued. These stocks are i3 Verticals, Inc. (NASDAQ:IIIV), Newmark Group, Inc. (NASDAQ:NMRK), Triumph Bancorp Inc (NASDAQ:TBK), Puxin Limited (NYSE:NEW), Forterra, Inc. (NASDAQ:FRTA), Stock Yards Bancorp, Inc. (NASDAQ:SYBT), and Raven Industries, Inc. (NASDAQ:RAVN). This group of stocks’ market valuations match KROS’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 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $215 million in KROS’s case. Forterra, Inc. (NASDAQ:FRTA) is the most popular stock in this table. On the other hand Triumph Bancorp Inc (NASDAQ:TBK) is the least popular one with only 5 bullish hedge fund positions. Keros Therapeutics, Inc. (NASDAQ:KROS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KROS is 30.6. 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. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on KROS as the stock returned 91.9% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.