In this article you are going to find out whether hedge funds think Metacrine, Inc. (NASDAQ:MTCR) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is MTCR a good stock to buy now? Money managers were buying. The number of bullish hedge fund positions rose by 8 lately. Metacrine, Inc. (NASDAQ:MTCR) was in 8 hedge funds’ portfolios at the end of September. Our calculations also showed that MTCR 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 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. With all of this in mind let’s analyze the fresh hedge fund action encompassing Metacrine, Inc. (NASDAQ:MTCR).
What does smart money think about Metacrine, Inc. (NASDAQ:MTCR)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8 from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MTCR over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Deerfield Management held the most valuable stake in Metacrine, Inc. (NASDAQ:MTCR), which was worth $9.5 million at the end of the third quarter. On the second spot was Prosight Capital which amassed $5.3 million worth of shares. EcoR1 Capital, Citadel Investment Group, and Alyeska Investment Group 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 Prosight Capital allocated the biggest weight to Metacrine, Inc. (NASDAQ:MTCR), around 2.52% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, designating 0.24 percent of its 13F equity portfolio to MTCR.
Now, specific money managers were leading the bulls’ herd. Deerfield Management, managed by James E. Flynn, established the largest position in Metacrine, Inc. (NASDAQ:MTCR). Deerfield Management had $9.5 million invested in the company at the end of the quarter. Lawrence Hawkins’s Prosight Capital also made a $5.3 million investment in the stock during the quarter. The following funds were also among the new MTCR investors: Oleg Nodelman’s EcoR1 Capital, Ken Griffin’s Citadel Investment Group, and Anand Parekh’s Alyeska Investment Group.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Metacrine, Inc. (NASDAQ:MTCR) but similarly valued. We will take a look at Arbutus Biopharma Corp (NASDAQ:ABUS), Liminal BioSciences Inc. (NASDAQ:LMNL), Stereotaxis Inc (NYSE:STXS), iRadimed Corporation (NASDAQ:IRMD), Capital Southwest Corporation (NASDAQ:CSWC), Taseko Mines Limited (NYSE:TGB), and United Insurance Holdings Corp. (NASDAQ:UIHC). This group of stocks’ market values match MTCR’s market value.
|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 7.3 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $25 million in MTCR’s case. Stereotaxis Inc (NYSE:STXS) is the most popular stock in this table. On the other hand Liminal BioSciences Inc. (NASDAQ:LMNL) is the least popular one with only 1 bullish hedge fund positions. Metacrine, Inc. (NASDAQ:MTCR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTCR is 53.1. 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 positive signal but 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 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately MTCR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTCR were disappointed as the stock returned -21.7% since the end of September (through 12/2) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.