Is Nantkwest Inc (NK) Going to Burn These Hedge Funds?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Nantkwest Inc (NASDAQ:NK).

Hedge fund interest in Nantkwest Inc (NASDAQ:NK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare NK to other stocks including NL Industries, Inc. (NYSE:NL), Radiant Logistics, Inc. (NYSEAMEX:RLGT), and Safe Bulkers, Inc. (NYSE:SB) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Let’s review the new hedge fund action regarding Nantkwest Inc (NASDAQ:NK).

What does the smart money think about Nantkwest Inc (NASDAQ:NK)?

Heading into the fourth quarter of 2018, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NK over the last 13 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds NK Positions

Among these funds, Renaissance Technologies held the most valuable stake in Nantkwest Inc (NASDAQ:NK), which was worth $2.6 million at the end of the third quarter. On the second spot was Wildcat Capital Management which amassed $2.1 million worth of shares. Moreover, Horizon Asset Management, Millennium Management, and D E Shaw were also bullish on Nantkwest Inc (NASDAQ:NK), allocating a large percentage of their portfolios to this stock.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Nantkwest Inc (NASDAQ:NK) but similarly valued. We will take a look at NL Industries, Inc. (NYSE:NL), Radiant Logistics, Inc. (NYSEAMEX:RLGT), Safe Bulkers, Inc. (NYSE:SB), and Superior Uniform Group Inc (NASDAQ:SGC). This group of stocks’ market valuations are similar to NK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NL 4 1348 -1
RLGT 10 9344 6
SB 8 15115 -1
SGC 5 6590 1
Average 6.75 8099 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $6 million in NK’s case. Radiant Logistics, Inc. (NYSEAMEX:RLGT) is the most popular stock in this table. On the other hand NL Industries, Inc. (NYSE:NL) is the least popular one with only 4 bullish hedge fund positions. Nantkwest Inc (NASDAQ:NK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RLGT might be a better candidate to consider a long position.

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