Was The Smart Money Wrong About Constellation Pharmaceuticals, Inc. (CNST)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Constellation Pharmaceuticals, Inc. (NASDAQ:CNST).

Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CNST has experienced an increase in activity from the world’s largest hedge funds of late. There were 25 hedge funds in our database with CNST holdings at the end of March. Our calculations also showed that CNST isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest insurance companies to identify fast growing companies in various industries. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to view the new hedge fund action regarding Constellation Pharmaceuticals, Inc. (NASDAQ:CNST).

How are hedge funds trading Constellation Pharmaceuticals, Inc. (NASDAQ:CNST)?

At Q2’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CNST a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is CNST A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) has the largest position in Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), worth close to $120.2 million, accounting for 2.4% of its total 13F portfolio. The second largest stake is held by Great Point Partners, led by Jeffrey Jay and David Kroin, holding a $104.6 million position; the fund has 8.4% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism encompass Christopher James’s Partner Fund Management, Eli Casdin’s Casdin Capital and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), around 8.36% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, setting aside 5.15 percent of its 13F equity portfolio to CNST.

As one would reasonably expect, key money managers were leading the bulls’ herd. EcoR1 Capital, managed by Oleg Nodelman, established the most outsized position in Constellation Pharmaceuticals, Inc. (NASDAQ:CNST). EcoR1 Capital had $25.2 million invested in the company at the end of the quarter. Thomas Steyer (founder)’s Farallon Capital also made a $10.5 million investment in the stock during the quarter. The following funds were also among the new CNST investors: Nathan Fischel’s DAFNA Capital Management, Matthew L Pinz’s Pinz Capital, and Krishen Sud’s Sivik Global Healthcare.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) but similarly valued. We will take a look at Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), TTM Technologies, Inc. (NASDAQ:TTMI), Matson Inc. (NYSE:MATX), Office Properties Income Trust (NASDAQ:OPI), Broadmark Realty Capital Inc. (NYSE:BRMK), Studio City International Holdings Limited (NYSE:MSC), and Materion Corp (NYSE:MTRN). This group of stocks’ market valuations are closest to CNST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRHC 8 34469 1
TTMI 18 85469 8
MATX 9 14403 6
OPI 11 20932 1
BRMK 8 89428 -7
MSC 3 192446 0
MTRN 14 98184 -4
Average 10.1 76476 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $453 million in CNST’s case. TTM Technologies, Inc. (NASDAQ:TTMI) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is more popular among hedge funds. Our overall hedge fund sentiment score for CNST 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 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 gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately CNST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CNST were disappointed as the stock returned -34.7% since the end of the second quarter (through 10/30) 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 in 2020.

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