We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Prometheus Biosciences, Inc. (NASDAQ:RXDX).
Is Prometheus Biosciences, Inc. (NASDAQ:RXDX) undervalued? Money managers were in an optimistic mood. The number of long hedge fund positions increased by 24 recently. Prometheus Biosciences, Inc. (NASDAQ:RXDX) was in 24 hedge funds’ portfolios at the end of March. Our calculations also showed that RXDX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the eyes of most traders, hedge funds are assumed to be unimportant, outdated investment tools of years past. While there are greater than 8000 funds trading today, Our researchers choose to focus on the aristocrats of this club, approximately 850 funds. Most estimates calculate that this group of people command the lion’s share of the smart money’s total asset base, and by tracking their finest picks, Insider Monkey has brought to light many investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Steven Cohen of Point72 Asset Management
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Do Hedge Funds Think RXDX Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RXDX over the last 23 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Perceptive Advisors was the largest shareholder of Prometheus Biosciences, Inc. (NASDAQ:RXDX), with a stake worth $55.4 million reported as of the end of March. Trailing Perceptive Advisors was Cormorant Asset Management, which amassed a stake valued at $36.6 million. 72 Investment Holdings, Point72 Asset Management, and Suvretta Capital Management 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 72 Investment Holdings allocated the biggest weight to Prometheus Biosciences, Inc. (NASDAQ:RXDX), around 51.02% of its 13F portfolio. Octagon Capital Advisors is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to RXDX.
As industrywide interest jumped, specific money managers have been driving this bullishness. Perceptive Advisors, managed by Joseph Edelman, established the most valuable position in Prometheus Biosciences, Inc. (NASDAQ:RXDX). Perceptive Advisors had $55.4 million invested in the company at the end of the quarter. Bihua Chen’s Cormorant Asset Management also made a $36.6 million investment in the stock during the quarter. The following funds were also among the new RXDX investors: Steve Cohen’s 72 Investment Holdings, Steve Cohen’s Point72 Asset Management, and Aaron Cowen’s Suvretta Capital Management.
Let’s go over hedge fund activity in other stocks similar to Prometheus Biosciences, Inc. (NASDAQ:RXDX). We will take a look at Molecular Templates, Inc. (NASDAQ:MTEM), Crossamerica Partners LP (NYSE:CAPL), HealthStream, Inc. (NASDAQ:HSTM), Sigilon Therapeutics, Inc. (NASDAQ:SGTX), Rimini Street, Inc. (NASDAQ:RMNI), CIRCOR International, Inc. (NYSE:CIR), and Ellington Financial Inc. (NYSE:EFC). All of these stocks’ market caps are similar to RXDX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTEM | 20 | 129514 | 0 |
| CAPL | 1 | 1095 | 0 |
| HSTM | 14 | 51904 | 0 |
| SGTX | 9 | 17809 | -3 |
| RMNI | 16 | 302443 | 5 |
| CIR | 13 | 133159 | 3 |
| EFC | 6 | 38694 | -3 |
| Average | 11.3 | 96374 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $204 million in RXDX’s case. Molecular Templates, Inc. (NASDAQ:MTEM) is the most popular stock in this table. On the other hand Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Prometheus Biosciences, Inc. (NASDAQ:RXDX) is more popular among hedge funds. Our overall hedge fund sentiment score for RXDX is 90. 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. 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 still managed to beat the market by 7.7 percentage points. Hedge funds were also right about betting on RXDX, though not to the same extent, as the stock returned 16.6% since the end of March (through July 16th) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
