“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Onconova Therapeutics, Inc. (NASDAQ:ONTX).
Is Onconova Therapeutics, Inc. (NASDAQ:ONTX) undervalued? Hedge funds are getting less bullish. The number of bullish hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that ONTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Steven Cohen of Point72 Asset 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. Now we’re going to take a gander at the recent hedge fund action regarding Onconova Therapeutics, Inc. (NASDAQ:ONTX).
What does smart money think about Onconova Therapeutics, Inc. (NASDAQ:ONTX)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in ONTX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Sabby Capital held the most valuable stake in Onconova Therapeutics, Inc. (NASDAQ:ONTX), which was worth $0.7 million at the end of the third quarter. On the second spot was Tyndall Capital Partners which amassed $0.5 million worth of shares. 683 Capital Partners, Point72 Asset Management, and Renaissance Technologies 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 Tyndall Capital Partners allocated the biggest weight to Onconova Therapeutics, Inc. (NASDAQ:ONTX), around 19.34% of its 13F portfolio. Sabby Capital is also relatively very bullish on the stock, dishing out 0.37 percent of its 13F equity portfolio to ONTX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Sabby Capital).
Let’s now review hedge fund activity in other stocks similar to Onconova Therapeutics, Inc. (NASDAQ:ONTX). We will take a look at Onconova Therapeutics, Inc. (NASDAQ:ONTX), Barnwell Industries, Inc. (NYSEAMERICAN:BRN), CHF Solutions, Inc. (NASDAQ:CHFS), and Spherix Incorporated (NASDAQ:SPEX). This group of stocks’ market values resemble ONTX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ONTX | 5 | 1947 | -1 |
| BRN | 1 | 73 | -1 |
| CHFS | 1 | 185 | -1 |
| SPEX | 1 | 84 | -1 |
| Average | 2 | 572 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $2 million in ONTX’s case. Onconova Therapeutics, Inc. (NASDAQ:ONTX) is the most popular stock in this table. On the other hand Barnwell Industries, Inc. (NYSEAMERICAN:BRN) is the least popular one with only 1 bullish hedge fund positions. Onconova Therapeutics, Inc. (NASDAQ:ONTX) 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 ONTX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ONTX were disappointed as the stock returned -77.6% 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.
