Is Mersana Therapeutics, Inc. (MRSN) A Good Stock To Buy?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 Mersana Therapeutics, Inc. (NASDAQ:MRSN).

Is MRSN a good stock to buy? Money managers were in a bearish mood. The number of long hedge fund positions decreased by 5 recently. Mersana Therapeutics, Inc. (NASDAQ:MRSN) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that MRSN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 30 hedge funds in our database with MRSN positions at the end of the fourth quarter.

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Daniel Gold QVT Financial

Daniel Gold of QVT Financial

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a peek at the new hedge fund action surrounding Mersana Therapeutics, Inc. (NASDAQ:MRSN).

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

Heading into the second quarter of 2021, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in MRSN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) has the biggest position in Mersana Therapeutics, Inc. (NASDAQ:MRSN), worth close to $110 million, amounting to 1.9% of its total 13F portfolio. The second most bullish fund manager is Alex Denner of Sarissa Capital Management, with a $64.8 million position; the fund has 6.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, OrbiMed Advisors and Panayotis Takis Sparaggis’s Alkeon Capital Management. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Mersana Therapeutics, Inc. (NASDAQ:MRSN), around 6.21% of its 13F portfolio. Commodore Capital is also relatively very bullish on the stock, earmarking 2.73 percent of its 13F equity portfolio to MRSN.

Because Mersana Therapeutics, Inc. (NASDAQ:MRSN) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of money managers that decided to sell off their full holdings by the end of the first quarter. Interestingly, Mitchell Blutt’s Consonance Capital Management dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $37.3 million in stock. Jeffrey Jay and David Kroin’s fund, Great Point Partners, also sold off its stock, about $13 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mersana Therapeutics, Inc. (NASDAQ:MRSN) but similarly valued. These stocks are Enerplus Corp (NYSE:ERF), Dynavax Technologies Corporation (NASDAQ:DVAX), SecureWorks Corp. (NASDAQ:SCWX), Brookdale Senior Living, Inc. (NYSE:BKD), Avid Bioservices, Inc. (NASDAQ:CDMO), NOW Inc (NYSE:DNOW), and Community Healthcare Trust Inc (NYSE:CHCT). This group of stocks’ market values match MRSN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERF 19 145392 2
DVAX 14 81307 0
SCWX 12 20191 1
BKD 23 386290 4
CDMO 21 140924 -4
DNOW 18 117523 -4
CHCT 14 81537 2
Average 17.3 139023 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $358 million in MRSN’s case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand SecureWorks Corp. (NASDAQ:SCWX) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Mersana Therapeutics, Inc. (NASDAQ:MRSN) is more popular among hedge funds. Our overall hedge fund sentiment score for MRSN is 75. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Unfortunately MRSN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MRSN were disappointed as the stock returned -20.4% since the end of the first quarter (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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