Is ZLAB Stock A Buy or Sell?

Is Zai Lab Limited (NASDAQ:ZLAB) 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 ZLAB a buy? Investors who are in the know were becoming hopeful. The number of long hedge fund bets went up by 2 in recent months. Zai Lab Limited (NASDAQ:ZLAB) was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZLAB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 28 hedge funds in our database with ZLAB holdings at the end of September.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Now we’re going to take a gander at the key hedge fund action regarding Zai Lab Limited (NASDAQ:ZLAB).

Do Hedge Funds Think ZLAB Is A Good Stock To Buy Now?

At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in ZLAB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Rock Springs Capital Management held the most valuable stake in Zai Lab Limited (NASDAQ:ZLAB), which was worth $115.7 million at the end of the fourth quarter. On the second spot was Indus Capital which amassed $61.7 million worth of shares. Hudson Bay Capital Management, Driehaus Capital, and Atika 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 Indus Capital allocated the biggest weight to Zai Lab Limited (NASDAQ:ZLAB), around 9.56% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, designating 3.5 percent of its 13F equity portfolio to ZLAB.

There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zai Lab Limited (NASDAQ:ZLAB) but similarly valued. These stocks are Universal Health Services, Inc. (NYSE:UHS), Cree, Inc. (NASDAQ:CREE), Medical Properties Trust, Inc. (NYSE:MPW), Nordson Corporation (NASDAQ:NDSN), International Flavors & Fragrances Inc (NYSE:IFF), Chegg Inc (NYSE:CHGG), and Essential Utilities Inc (NYSE:WTRG). This group of stocks’ market valuations are closest to ZLAB’s market valuation.

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As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $588 million in ZLAB’s case. Universal Health Services, Inc. (NYSE:UHS) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 13 bullish hedge fund positions. Zai Lab Limited (NASDAQ:ZLAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZLAB is 69.7. 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. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately ZLAB wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZLAB were disappointed as the stock returned -2.4% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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