Is Obalon Therapeutics, Inc. (OBLN) A Good Stock To Buy?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Obalon Therapeutics, Inc. (NASDAQ:OBLN).

Is Obalon Therapeutics, Inc. (NASDAQ:OBLN) a healthy stock for your portfolio? The smart money was becoming hopeful. The number of long hedge fund bets increased by 2 recently. Obalon Therapeutics, Inc. (NASDAQ:OBLN) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 5. Our calculations also showed that OBLN 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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 10 most profitable companies in the world 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. With all of this in mind we’re going to analyze the recent hedge fund action regarding Obalon Therapeutics, Inc. (NASDAQ:OBLN).

What have hedge funds been doing with Obalon Therapeutics, Inc. (NASDAQ:OBLN)?

At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 200% from one quarter earlier. On the other hand, there were a total of 2 hedge funds with a bullish position in OBLN a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Armistice Capital held the most valuable stake in Obalon Therapeutics, Inc. (NASDAQ:OBLN), which was worth $0.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0 million worth of shares. Citadel Investment Group was 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 Armistice Capital allocated the biggest weight to Obalon Therapeutics, Inc. (NASDAQ:OBLN), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0 percent of its 13F equity portfolio to OBLN.

With a general bullishness amongst the heavyweights, some big names have jumped into Obalon Therapeutics, Inc. (NASDAQ:OBLN) headfirst. Armistice Capital, managed by Steven Boyd, assembled the biggest position in Obalon Therapeutics, Inc. (NASDAQ:OBLN). Armistice Capital had $0.7 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0 million investment in the stock during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Obalon Therapeutics, Inc. (NASDAQ:OBLN) but similarly valued. We will take a look at Avalon Holdings Corp (NYSE:AWX), Recon Technology, Ltd. (NASDAQ:RCON), SunLink Health Systems, Inc. (NYSE:SSY), Reliv International, Inc (NASDAQ:RELV), Lonestar Resources US Inc. (NASDAQ:LONE), Xenetic Biosciences, Inc. (NASDAQ:XBIO), and Staffing 360 Solutions, Inc. (NASDAQ:STAF). All of these stocks’ market caps match OBLN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AWX 1 94 0
RCON 1 22 0
SSY 2 284 0
RELV 1 352 0
LONE 4 1064 0
XBIO 1 54 0
STAF 1 63 0
Average 1.6 276 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.6 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $1 million in OBLN’s case. Lonestar Resources US Inc. (NASDAQ:LONE) is the most popular stock in this table. On the other hand Avalon Holdings Corp (NYSE:AWX) is the least popular one with only 1 bullish hedge fund positions. Obalon Therapeutics, Inc. (NASDAQ:OBLN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OBLN is 58.3. 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 28.1% in 2020 through November 23rd and beat the market again by 15.4 percentage points. Unfortunately OBLN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on OBLN were disappointed as the stock returned -1.6% since the end of September (through 11/23) 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.

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