Were Hedge Funds Right About Dumping Vericel Corp (VCEL)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Vericel Corp (NASDAQ:VCEL).

Vericel Corp (NASDAQ:VCEL) has experienced a decrease in enthusiasm from smart money in recent months. Vericel Corp (NASDAQ:VCEL) was in 18 hedge funds’ portfolios at the end of March. The all time high for this statistic is 25. Our calculations also showed that VCEL 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 check out the key hedge fund action surrounding Vericel Corp (NASDAQ:VCEL).

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

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in VCEL a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Is VCEL A Good Stock To Buy?

Among these funds, Pura Vida Investments held the most valuable stake in Vericel Corp (NASDAQ:VCEL), which was worth $20.8 million at the end of the fourth quarter. On the second spot was Kent Lake Capital which amassed $18.1 million worth of shares. Fisher Asset Management, Intrinsic Edge Capital, and Iron Triangle Partners 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 Kent Lake Capital allocated the biggest weight to Vericel Corp (NASDAQ:VCEL), around 7.35% of its 13F portfolio. SilverArc Capital is also relatively very bullish on the stock, dishing out 3.7 percent of its 13F equity portfolio to VCEL.

Because Vericel Corp (NASDAQ:VCEL) has faced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds that slashed their entire stakes heading into Q2. Interestingly, Jeffrey Jay and David Kroin’s Great Point Partners dropped the biggest position of the 750 funds watched by Insider Monkey, valued at an estimated $27.8 million in stock, and Guy Levy’s Soleus Capital was right behind this move, as the fund cut about $7.3 million worth. These transactions are important to note, as total hedge fund interest fell by 6 funds heading into Q2.

Let’s also examine hedge fund activity in other stocks similar to Vericel Corp (NASDAQ:VCEL). We will take a look at RLJ Lodging Trust (NYSE:RLJ), TransAlta Corporation (NYSE:TAC), Innospec Inc. (NASDAQ:IOSP), Minerals Technologies Inc (NYSE:MTX), Compania de Minas Buenaventura SA (NYSE:BVN), iHeartMedia, Inc. (NASDAQ:IHRT), and MaxLinear, Inc. (NYSE:MXL). This group of stocks’ market valuations are closest to VCEL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RLJ 14 70067 4
TAC 11 86696 -5
IOSP 9 116450 -4
MTX 9 101303 -2
BVN 7 93630 -1
IHRT 26 408317 3
MXL 19 85386 6
Average 13.6 137407 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $109 million in VCEL’s case. iHeartMedia, Inc. (NASDAQ:IHRT) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura SA (NYSE:BVN) is the least popular one with only 7 bullish hedge fund positions. Vericel Corp (NASDAQ:VCEL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VCEL is 49.5. 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 positive signal but 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately VCEL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on VCEL were disappointed as the stock returned -4.2% since the end of March (through 7/23) 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 many of these stocks already outperformed the market since 2019.

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