Millendo Therapeutics, Inc. (MLND): Hedge Funds Were Caught Flatfooted

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Millendo Therapeutics, Inc. (NASDAQ:MLND) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Millendo Therapeutics, Inc. (NASDAQ:MLND) the right pick for your portfolio? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets increased by 2 in recent months. Our calculations also showed that MLND isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathan Fischel DAFNA Capital

Nathan Fischel of DAFNA Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action encompassing Millendo Therapeutics, Inc. (NASDAQ:MLND).

What have hedge funds been doing with Millendo Therapeutics, Inc. (NASDAQ:MLND)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MLND over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is MLND A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Great Point Partners, managed by Jeffrey Jay and David Kroin, holds the largest position in Millendo Therapeutics, Inc. (NASDAQ:MLND). Great Point Partners has a $9.1 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Alan Frazier of Frazier Healthcare Partners, with a $7.4 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Julian Baker and Felix Baker’s Baker Bros. Advisors, Srini Akkaraju and Michael Dybbs’s Samsara BioCapital and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Samsara BioCapital allocated the biggest weight to Millendo Therapeutics, Inc. (NASDAQ:MLND), around 2.28% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, setting aside 0.95 percent of its 13F equity portfolio to MLND.

Consequently, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in Millendo Therapeutics, Inc. (NASDAQ:MLND). Citadel Investment Group had $2 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also initiated a $0.9 million position during the quarter. The other funds with brand new MLND positions are Guy Levy’s Soleus Capital and Israel Englander’s Millennium Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Millendo Therapeutics, Inc. (NASDAQ:MLND) but similarly valued. These stocks are Palatin Technologies, Inc. (NYSE:PTN), Axovant Gene Therapies Ltd. (NASDAQ:AXGT), Intevac, Inc. (NASDAQ:IVAC), and Aptinyx Inc. (NASDAQ:APTX). This group of stocks’ market caps match MLND’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTN 5 1040 -2
AXGT 11 27247 4
IVAC 8 15848 -1
APTX 10 24926 1
Average 8.5 17265 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $35 million in MLND’s case. Axovant Gene Therapies Ltd. (NASDAQ:AXGT) is the most popular stock in this table. On the other hand Palatin Technologies, Inc. (NYSE:PTN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Millendo Therapeutics, Inc. (NASDAQ:MLND) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately MLND wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MLND were disappointed as the stock returned -64.8% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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