Is STSA A Good Stock To Buy Now?

Is Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA) 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 STSA a good stock to buy now? Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. STSA has experienced a decrease in support from the world’s most elite money managers in recent months. There were 12 hedge funds in our database with STSA positions at the end of the second quarter. Our calculations also showed that STSA 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 viewed as underperforming, old investment vehicles of years past. While there are more than 8000 funds trading at present, Our experts hone in on the moguls of this group, about 850 funds. It is estimated that this group of investors command most of the smart money’s total capital, and by shadowing their matchless picks, Insider Monkey has found various investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually 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 .

Peter Kolchinsky of RA Capital 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 let’s view the key hedge fund action encompassing Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA).

How are hedge funds trading Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA)?

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 -33% from the second quarter of 2020. By comparison, 7 hedge funds held shares or bullish call options in STSA a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Peter Kolchinsky’s RA Capital Management has the largest position in Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), worth close to $18.2 million, corresponding to 0.3% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $1.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions contain John Overdeck and David Siegel’s Two Sigma Advisors, Ken Greenberg and David Kim’s Ghost Tree Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), around 0.33% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, earmarking 0.22 percent of its 13F equity portfolio to STSA.

Because Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA) has witnessed declining sentiment from the smart money, it’s safe to say that there exists a select few funds that slashed their entire stakes by the end of the third quarter. At the top of the heap, Bihua Chen’s Cormorant Asset Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $23 million in stock. Neil Shahrestani’s fund, Ikarian Capital, also sold off its stock, about $9.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA). These stocks are Heritage Global Inc. (NASDAQ:HGBL), Aemetis, Inc (NASDAQ:AMTX), Kingsway Financial Services Inc. (NYSE:KFS), Stealth BioTherapeutics Corp (NASDAQ:MITO), Exantas Capital Corp. (NYSE:XAN), Clearsign Technologies Corp (NASDAQ:CLIR), and Novan, Inc. (NASDAQ:NOVN). This group of stocks’ market valuations are closest to STSA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HGBL 1 27 1
AMTX 2 3749 -1
KFS 2 1293 0
MITO 4 533 0
XAN 9 3740 -4
CLIR 1 183 -1
NOVN 2 75 0
Average 3 1371 -0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $22 million in STSA’s case. Exantas Capital Corp. (NYSE:XAN) is the most popular stock in this table. On the other hand Heritage Global Inc. (NASDAQ:HGBL) is the least popular one with only 1 bullish hedge fund positions. Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STSA is 64.8. 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. Hedge funds were also right about betting on STSA as the stock returned 18.5% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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