Should You Buy TRACON Pharmaceuticals Inc (TCON)?

In this article we will take a look at whether hedge funds think TRACON Pharmaceuticals Inc (NASDAQ:TCON) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

TRACON Pharmaceuticals Inc (NASDAQ:TCON) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that TCON 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 51 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the latest hedge fund action regarding TRACON Pharmaceuticals Inc (NASDAQ:TCON).

How are hedge funds trading TRACON Pharmaceuticals Inc (NASDAQ:TCON)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TCON over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TCON A Good Stock To Buy?

The largest stake in TRACON Pharmaceuticals Inc (NASDAQ:TCON) was held by Renaissance Technologies, which reported holding $0.4 million worth of stock at the end of September. It was followed by 683 Capital Partners with a $0.1 million position. Other investors bullish on the company included Millennium Management, Puissance Capital Managementá, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Puissance Capital Managementá allocated the biggest weight to TRACON Pharmaceuticals Inc (NASDAQ:TCON), around 0.36% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to TCON.

As industrywide interest jumped, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the largest position in TRACON Pharmaceuticals Inc (NASDAQ:TCON). Millennium Management had $0 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $0 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as TRACON Pharmaceuticals Inc (NASDAQ:TCON) but similarly valued. We will take a look at CHF Solutions, Inc. (NASDAQ:CHFS), Dynatronics Corporation (NASDAQ:DYNT), Insignia Systems, Inc. (NASDAQ:ISIG), and Xtant Medical Holdings, Inc. (NYSE:XTNT). This group of stocks’ market values are similar to TCON’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHFS 1 9 0
DYNT 1 257 0
ISIG 1 562 -1
XTNT 3 7071 0
Average 1.5 1975 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $1 million in TCON’s case. Xtant Medical Holdings, Inc. (NYSE:XTNT) is the most popular stock in this table. On the other hand CHF Solutions, Inc. (NASDAQ:CHFS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks TRACON Pharmaceuticals Inc (NASDAQ:TCON) 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on TCON as the stock returned 35.3% so far in Q2 (through the end of May) 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.