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Natera Inc (NTRA): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Natera Inc (NASDAQ:NTRA) based on that data and determine whether they were really smart about the stock.

Natera Inc (NASDAQ:NTRA) was in 32 hedge funds’ portfolios at the end of March. NTRA has seen a decrease in support from the world’s most elite money managers in recent months. There were 33 hedge funds in our database with NTRA positions at the end of the previous quarter. Our calculations also showed that NTRA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Samuel Isaly Orbimed Advisors

Samuel Isaly of OrbiMed Advisors

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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Natera Inc (NASDAQ:NTRA).

Hedge fund activity in Natera Inc (NASDAQ:NTRA)

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in NTRA a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, OrbiMed Advisors held the most valuable stake in Natera Inc (NASDAQ:NTRA), which was worth $99.9 million at the end of the third quarter. On the second spot was Millennium Management which amassed $53.5 million worth of shares. Bridger Management, Deerfield Management, and Driehaus 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 Foresite Capital allocated the biggest weight to Natera Inc (NASDAQ:NTRA), around 9.93% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, earmarking 5.37 percent of its 13F equity portfolio to NTRA.

Because Natera Inc (NASDAQ:NTRA) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Kamran Moghtaderi’s Eversept Partners sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $5.3 million in stock, and Efrem Kamen’s Pura Vida Investments was right behind this move, as the fund said goodbye to about $2.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Natera Inc (NASDAQ:NTRA). We will take a look at Wingstop Inc (NASDAQ:WING), Shell Midstream Partners LP (NYSE:SHLX), Thor Industries, Inc. (NYSE:THO), and Arco Platform Limited (NASDAQ:ARCE). This group of stocks’ market values match NTRA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WING 27 264265 3
SHLX 4 12962 -4
THO 20 80400 -10
ARCE 16 144545 -1
Average 16.75 125543 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $393 million in NTRA’s case. Wingstop Inc (NASDAQ:WING) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Natera Inc (NASDAQ:NTRA) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on NTRA as the stock returned 67% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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