Is NKTX A Good Stock To Buy Now?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Nkarta, Inc. (NASDAQ:NKTX).

Is NKTX a good stock to buy now? Investors who are in the know were turning bullish. The number of bullish hedge fund bets went up by 8 lately. Nkarta, Inc. (NASDAQ:NKTX) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that NKTX 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.

To most shareholders, hedge funds are perceived as slow, old financial tools of years past. While there are greater than 8000 funds with their doors open today, We choose to focus on the moguls of this group, around 850 funds. These money managers watch over the lion’s share of the hedge fund industry’s total capital, and by tracking their top equity investments, Insider Monkey has brought to light various investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

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 take a peek at the new hedge fund action regarding Nkarta, Inc. (NASDAQ:NKTX).

How have hedgies been trading Nkarta, Inc. (NASDAQ:NKTX)?

Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in NKTX 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.

More specifically, RA Capital Management was the largest shareholder of Nkarta, Inc. (NASDAQ:NKTX), with a stake worth $168.5 million reported as of the end of September. Trailing RA Capital Management was Deerfield Management, which amassed a stake valued at $72.7 million. Logos Capital, Samsara BioCapital, and Hillhouse Capital Management 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 Samsara BioCapital allocated the biggest weight to Nkarta, Inc. (NASDAQ:NKTX), around 17.06% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 8.12 percent of its 13F equity portfolio to NKTX.

Now, key money managers have been driving this bullishness. RA Capital Management, managed by Peter Kolchinsky, created the biggest position in Nkarta, Inc. (NASDAQ:NKTX). RA Capital Management had $168.5 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also made a $72.7 million investment in the stock during the quarter. The following funds were also among the new NKTX investors: Arsani William’s Logos Capital, Srini Akkaraju and Michael Dybbs’s Samsara BioCapital, and Lei Zhang’s Hillhouse Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Nkarta, Inc. (NASDAQ:NKTX) but similarly valued. These stocks are KKR Real Estate Finance Trust Inc. (NYSE:KREF), Trinseo S.A. (NYSE:TSE), Sally Beauty Holdings, Inc. (NYSE:SBH), Signet Jewelers Limited (NYSE:SIG), Kite Realty Group Trust (NYSE:KRG), Myriad Genetics, Inc. (NASDAQ:MYGN), and Usa Compression Partners LP (NYSE:USAC). This group of stocks’ market values match NKTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KREF 6 8662 -2
TSE 13 31760 -5
SBH 27 134912 1
SIG 22 379553 6
KRG 7 38413 -3
MYGN 19 190093 -2
USAC 4 6819 1
Average 14 112887 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $413 million in NKTX’s case. Sally Beauty Holdings, Inc. (NYSE:SBH) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 4 bullish hedge fund positions. Nkarta, Inc. (NASDAQ:NKTX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NKTX is 23.9. 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 NKTX as the stock returned 13.1% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.

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