In this article we are going to use hedge fund sentiment as a tool and determine whether NeoGenomics, Inc. (NASDAQ:NEO) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is NEO a good stock to buy now? Prominent investors were in a pessimistic mood. The number of bullish hedge fund bets went down by 2 lately. NeoGenomics, Inc. (NASDAQ:NEO) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that NEO 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). There were 19 hedge funds in our database with NEO positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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 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. Now let’s take a look at the key hedge fund action regarding NeoGenomics, Inc. (NASDAQ:NEO).
Do Hedge Funds Think NEO Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in NEO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Driehaus Capital was the largest shareholder of NeoGenomics, Inc. (NASDAQ:NEO), with a stake worth $21.5 million reported as of the end of September. Trailing Driehaus Capital was Arrowstreet Capital, which amassed a stake valued at $16.3 million. Burrage Capital Management, Millennium Management, and Royce & Associates 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 Burrage Capital Management allocated the biggest weight to NeoGenomics, Inc. (NASDAQ:NEO), around 5.61% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to NEO.
Seeing as NeoGenomics, Inc. (NASDAQ:NEO) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Robert Henry Lynch’s Aristeia Capital dumped the largest position of all the hedgies watched by Insider Monkey, worth an estimated $7.5 million in stock. Xiuping Li’s fund, Opti Capital Management, also dropped its stock, about $5.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NeoGenomics, Inc. (NASDAQ:NEO) but similarly valued. These stocks are Nexstar Media Group, Inc. (NASDAQ:NXST), The Timken Company (NYSE:TKR), Mattel, Inc. (NASDAQ:MAT), Companhia Siderurgica Nacional (NYSE:SID), Acuity Brands, Inc. (NYSE:AYI), Virgin Galactic Holdings, Inc. (NYSE:SPCE), and Wingstop Inc (NASDAQ:WING). All of these stocks’ market caps match NEO’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 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $430 million. That figure was $79 million in NEO’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 7 bullish hedge fund positions. NeoGenomics, Inc. (NASDAQ:NEO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEO is 39. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on NEO as the stock returned 41% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.