Should I Buy Allogene Therapeutics, Inc. (ALLO)?

In this article we will check out the progression of hedge fund sentiment towards Allogene Therapeutics, Inc. (NASDAQ:ALLO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Allogene Therapeutics, Inc. (NASDAQ:ALLO) was in 19 hedge funds’ portfolios at the end of March. The all time high for this statistic is 24. ALLO has experienced an increase in hedge fund sentiment recently. There were 18 hedge funds in our database with ALLO positions at the end of the fourth quarter. Our calculations also showed that ALLO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s take a glance at the recent hedge fund action regarding Allogene Therapeutics, Inc. (NASDAQ:ALLO).

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

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the fourth quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in ALLO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ALLO A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Leonard A. Potter’s Wildcat Capital Management has the most valuable position in Allogene Therapeutics, Inc. (NASDAQ:ALLO), worth close to $53.5 million, accounting for 6.5% of its total 13F portfolio. Sitting at the No. 2 spot is Casdin Capital, managed by Eli Casdin, which holds a $45.9 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of Joseph Edelman’s Perceptive Advisors, Lei Zhang’s Hillhouse Capital Management and Michael Rockefeller and KarláKroeker’s Woodline Partners. In terms of the portfolio weights assigned to each position Wildcat Capital Management allocated the biggest weight to Allogene Therapeutics, Inc. (NASDAQ:ALLO), around 6.53% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, designating 1.37 percent of its 13F equity portfolio to ALLO.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Partner Fund Management, managed by Christopher James, established the most outsized position in Allogene Therapeutics, Inc. (NASDAQ:ALLO). Partner Fund Management had $20.8 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey’s Healthcor Management LP also made a $17.5 million investment in the stock during the quarter. The other funds with brand new ALLO positions are Louis Bacon’s Moore Global Investments, Christopher James’s Partner Fund Management, and Neil Shahrestani’s Ikarian Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Allogene Therapeutics, Inc. (NASDAQ:ALLO) but similarly valued. These stocks are Emergent Biosolutions Inc (NYSE:EBS), RBC Bearings Incorporated (NASDAQ:ROLL), NCR Corporation (NYSE:NCR), Cirrus Logic, Inc. (NASDAQ:CRUS), Power Integrations Inc (NASDAQ:POWI), Signify Health, Inc. (NYSE:SGFY), and STAAR Surgical Company (NASDAQ:STAA). This group of stocks’ market values are similar to ALLO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EBS 13 123191 -6
ROLL 10 47939 -4
NCR 24 383040 -8
CRUS 26 286037 -2
POWI 18 136336 1
SGFY 28 189217 28
STAA 16 1291146 -1
Average 19.3 350987 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $283 million in ALLO’s case. Signify Health, Inc. (NYSE:SGFY) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 10 bullish hedge fund positions. Allogene Therapeutics, Inc. (NASDAQ:ALLO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALLO is 54.8. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately ALLO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ALLO investors were disappointed as the stock returned -35.9% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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