In this article we are going to use hedge fund sentiment as a tool and determine whether PolarityTE, Inc. (NASDAQ:PTE) 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 PTE a good stock to buy now? The smart money was taking a pessimistic view. The number of long hedge fund positions were trimmed by 4 in recent months. PolarityTE, Inc. (NASDAQ:PTE) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 14. Our calculations also showed that PTE 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 11 hedge funds in our database with PTE positions at the end of the second quarter.
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.
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 take a peek at the key hedge fund action encompassing PolarityTE, Inc. (NASDAQ:PTE).
Hedge fund activity in PolarityTE, Inc. (NASDAQ:PTE)
Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in PTE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Castle Hook Partners held the most valuable stake in PolarityTE, Inc. (NASDAQ:PTE), which was worth $1.3 million at the end of the third quarter. On the second spot was DSAM Partners which amassed $0.9 million worth of shares. D E Shaw, Alyeska Investment Group, and Citadel 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 DSAM Partners allocated the biggest weight to PolarityTE, Inc. (NASDAQ:PTE), around 0.16% of its 13F portfolio. Castle Hook Partners is also relatively very bullish on the stock, earmarking 0.05 percent of its 13F equity portfolio to PTE.
Due to the fact that PolarityTE, Inc. (NASDAQ:PTE) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Donald Sussman’s Paloma Partners sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $0.1 million in stock. Karim Abbadi and Edward McBride’s fund, Centiva Capital, also sold off its stock, about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PolarityTE, Inc. (NASDAQ:PTE) but similarly valued. These stocks are ProPhase Labs Inc (NASDAQ:PRPH), IsoRay, Inc. (NYSE:ISR), Ranger Energy Services, Inc. (NYSE:RNGR), Apollo Endosurgery, Inc. (NASDAQ:APEN), Phunware, Inc. (NASDAQ:PHUN), Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL), and Express, Inc. (NYSE:EXPR). This group of stocks’ market caps are similar to PTE’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 4.1 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $3 million in PTE’s case. Express, Inc. (NYSE:EXPR) is the most popular stock in this table. On the other hand ProPhase Labs Inc (NASDAQ:PRPH) is the least popular one with only 1 bullish hedge fund positions. PolarityTE, Inc. (NASDAQ:PTE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTE is 41. 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 PTE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PTE were disappointed as the stock returned -31.7% 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.