Is Rafael Holdings, Inc. (NYSE:RFL) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Rafael Holdings (RFL) a good stock to buy now? RFL shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that RFL 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). At the end of this article we will also compare RFL to other stocks including Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI), Tecnoglass Inc. (NASDAQ:TGLS), and Cross Country Healthcare, Inc. (NASDAQ:CCRN) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 we’re going to check out the recent hedge fund action regarding Rafael Holdings, Inc. (NYSE:RFL).
How have hedgies been trading Rafael Holdings, Inc. (NYSE:RFL)?
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in RFL a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in Rafael Holdings, Inc. (NYSE:RFL), which was worth $7 million at the end of the third quarter. On the second spot was Kahn Brothers which amassed $6.4 million worth of shares. Renaissance Technologies, Newtyn Management, and Soleus Capital 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 Newtyn Management allocated the biggest weight to Rafael Holdings, Inc. (NYSE:RFL), around 1.41% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, dishing out 1.22 percent of its 13F equity portfolio to RFL.
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 check out hedge fund activity in other stocks similar to Rafael Holdings, Inc. (NYSE:RFL). These stocks are Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI), Tecnoglass Inc. (NASDAQ:TGLS), Cross Country Healthcare, Inc. (NASDAQ:CCRN), The Joint Corp. (NASDAQ:JYNT), Global Water Resources, Inc. (NASDAQ:GWRS), Calithera Biosciences Inc (NASDAQ:CALA), and Fiesta Restaurant Group Inc (NASDAQ:FRGI). This group of stocks’ market caps are closest to RFL’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 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $27 million in RFL’s case. The Joint Corp. (NASDAQ:JYNT) is the most popular stock in this table. On the other hand Tecnoglass Inc. (NASDAQ:TGLS) is the least popular one with only 3 bullish hedge fund positions. Rafael Holdings, Inc. (NYSE:RFL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RFL is 23.7. 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 November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on RFL as the stock returned 41% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.