Is ZYME Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Zymeworks Inc. (NYSE:ZYME).

Is ZYME stock a buy? Zymeworks Inc. (NYSE:ZYME) has experienced a decrease in hedge fund interest recently. Zymeworks Inc. (NYSE:ZYME) was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 31. There were 29 hedge funds in our database with ZYME positions at the end of the third quarter. Our calculations also showed that ZYME isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x 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 take a look at the fresh hedge fund action encompassing Zymeworks Inc. (NYSE:ZYME).

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

At fourth quarter’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in ZYME 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.

The largest stake in Zymeworks Inc. (NYSE:ZYME) was held by Perceptive Advisors, which reported holding $203.3 million worth of stock at the end of December. It was followed by Baker Bros. Advisors with a $80.7 million position. Other investors bullish on the company included Cormorant Asset Management, Redmile Group, and Lone Pine Capital. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to Zymeworks Inc. (NYSE:ZYME), around 6.14% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, dishing out 2.18 percent of its 13F equity portfolio to ZYME.

Because Zymeworks Inc. (NYSE:ZYME) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of money managers that elected to cut their positions entirely in the fourth quarter. It’s worth mentioning that Michael Rockefeller and Karl Kroeker’s Woodline Partners dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $19.4 million in stock. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also dropped its stock, about $16.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds in the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to Zymeworks Inc. (NYSE:ZYME). These stocks are South Jersey Industries Inc (NYSE:SJI), Kura Oncology, Inc. (NASDAQ:KURA), Shenandoah Telecommunications Company (NASDAQ:SHEN), TC Pipelines, LP (NYSE:TCP), Pretium Resources Inc (NYSE:PVG), Flagstar Bancorp Inc (NYSE:FBC), and Silk Road Medical, Inc. (NASDAQ:SILK). This group of stocks’ market caps are closest to ZYME’s market cap.

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As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $688 million in ZYME’s case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Zymeworks Inc. (NYSE:ZYME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZYME is 62.8. 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. 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 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately ZYME wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZYME were disappointed as the stock returned -41.8% since the end of December (through 4/19) 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.