Neuronetics, Inc. (STIM) Is Burning These Hedge Funds

Is Neuronetics, Inc. (NASDAQ:STIM) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Neuronetics, Inc. (NASDAQ:STIM) was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. STIM investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 5 hedge funds in our database with STIM positions at the end of the previous quarter. Our calculations also showed that STIM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the fresh hedge fund action regarding Neuronetics, Inc. (NASDAQ:STIM).

Hedge fund activity in Neuronetics, Inc. (NASDAQ:STIM)

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in STIM a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is STIM A Good Stock To Buy?

Of the funds tracked by Insider Monkey, James E. Flynn’s Deerfield Management has the most valuable position in Neuronetics, Inc. (NASDAQ:STIM), worth close to $2.8 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by DAFNA Capital Management, managed by Nathan Fischel, which holds a $0.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass Israel Englander’s Millennium Management, Renaissance Technologies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position DAFNA Capital Management allocated the biggest weight to Neuronetics, Inc. (NASDAQ:STIM), around 0.33% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to STIM.

Consequently, key hedge funds were leading the bulls’ herd. DAFNA Capital Management, managed by Nathan Fischel, initiated the biggest position in Neuronetics, Inc. (NASDAQ:STIM). DAFNA Capital Management had $0.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0.2 million investment in the stock during the quarter.

Let’s go over hedge fund activity in other stocks similar to Neuronetics, Inc. (NASDAQ:STIM). We will take a look at FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW), Ramaco Resources, Inc. (NASDAQ:METC), Middlefield Banc Corp. (NASDAQ:MBCN), and MAM Software Group Inc. (NASDAQ:MAMS). All of these stocks’ market caps match STIM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFNW 1 9976 -1
METC 7 3455 1
MBCN 4 14858 1
MAMS 5 39958 1
Average 4.25 17062 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $4 million in STIM’s case. Ramaco Resources, Inc. (NASDAQ:METC) is the most popular stock in this table. On the other hand FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW) is the least popular one with only 1 bullish hedge fund positions. Neuronetics, Inc. (NASDAQ:STIM) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately STIM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STIM were disappointed as the stock returned -48% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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