Sol-Gel Technologies Ltd. (SLGL): Hedge Funds In Wait-and-See Mode

In this article we will check out the progression of hedge fund sentiment towards Sol-Gel Technologies Ltd. (NASDAQ:SLGL) 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.

Sol-Gel Technologies Ltd. (NASDAQ:SLGL) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as First Internet Bancorp (NASDAQ:INBK), FS Bancorp, Inc. (NASDAQ:FSBW), and Profound Medical Corp. (NASDAQ:PROF) to gather more data points. Our calculations also showed that SLGL 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.

In the 21st century investor’s toolkit there are several formulas stock market investors have at their disposal to grade stocks. Two of the less utilized formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce their index-focused peers by a significant amount (see the details here).

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

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. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing Sol-Gel Technologies Ltd. (NASDAQ:SLGL).

How have hedgies been trading Sol-Gel Technologies Ltd. (NASDAQ:SLGL)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in SLGL a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Kingdon Capital, managed by Mark Kingdon, holds the biggest position in Sol-Gel Technologies Ltd. (NASDAQ:SLGL). Kingdon Capital has a $5.9 million position in the stock, comprising 1.1% of its 13F portfolio. The second largest stake is held by Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Renaissance Technologies, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Kingdon Capital allocated the biggest weight to Sol-Gel Technologies Ltd. (NASDAQ:SLGL), around 1.07% of its 13F portfolio. Alkeon Capital Management is also relatively very bullish on the stock, designating 0.0034 percent of its 13F equity portfolio to SLGL.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Broadfin Capital. 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 Millennium Management).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sol-Gel Technologies Ltd. (NASDAQ:SLGL) but similarly valued. These stocks are First Internet Bancorp (NASDAQ:INBK), FS Bancorp, Inc. (NASDAQ:FSBW), Profound Medical Corp. (NASDAQ:PROF), and Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL). This group of stocks’ market valuations match SLGL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INBK 8 4503 0
FSBW 5 11452 -3
PROF 8 16670 5
AOSL 11 19992 2
Average 8 13154 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $7 million in SLGL’s case. Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is the most popular stock in this table. On the other hand FS Bancorp, Inc. (NASDAQ:FSBW) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Sol-Gel Technologies Ltd. (NASDAQ:SLGL) is even less popular than FSBW. Hedge funds dodged a bullet by taking a bearish stance towards SLGL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately SLGL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SLGL investors were disappointed as the stock returned 9.3% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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