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Were Hedge Funds Right About Dumping ViewRay, Inc. (VRAY)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ViewRay, Inc. (NASDAQ:VRAY) and determine whether hedge funds had an edge regarding this stock.

ViewRay, Inc. (NASDAQ:VRAY) was in 12 hedge funds’ portfolios at the end of March. VRAY shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 22 hedge funds in our database with VRAY holdings at the end of the previous quarter. Our calculations also showed that VRAY 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.

According to most investors, hedge funds are seen as unimportant, old financial vehicles of the past. While there are more than 8000 funds in operation at the moment, Our experts look at the leaders of this club, approximately 850 funds. Most estimates calculate that this group of people watch over most of the hedge fund industry’s total asset base, and by shadowing their best investments, Insider Monkey has formulated numerous investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Jeffrey Ray - Great Point Partners

Jeffrey Ray of Great Point Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the latest hedge fund action regarding ViewRay, Inc. (NASDAQ:VRAY).

What have hedge funds been doing with ViewRay, Inc. (NASDAQ:VRAY)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -45% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in VRAY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Hudson Executive Capital, managed by Douglas Braunstein and James Woolery, holds the number one position in ViewRay, Inc. (NASDAQ:VRAY). Hudson Executive Capital has a $32.6 million position in the stock, comprising 4.1% of its 13F portfolio. On Hudson Executive Capital’s heels is Efrem Kamen of Pura Vida Investments, with a $17.3 million position; 4.4% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include Israel Englander’s Millennium Management, Jeffrey Jay and David Kroin’s Great Point Partners and Joseph Edelman’s Perceptive Advisors. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to ViewRay, Inc. (NASDAQ:VRAY), around 4.4% of its 13F portfolio. Hudson Executive Capital is also relatively very bullish on the stock, earmarking 4.12 percent of its 13F equity portfolio to VRAY.

Due to the fact that ViewRay, Inc. (NASDAQ:VRAY) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedgies that slashed their entire stakes in the first quarter. Intriguingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP dropped the largest investment of the 750 funds tracked by Insider Monkey, worth an estimated $40 million in stock, and Ted Wang’s Puissance Capital Managementá was right behind this move, as the fund sold off about $28.9 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 10 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ViewRay, Inc. (NASDAQ:VRAY) but similarly valued. We will take a look at Clean Energy Fuels Corp (NASDAQ:CLNE), Caesarstone Ltd (NASDAQ:CSTE), Zynex, Inc. (NASDAQ:ZYXI), and Crawford & Company (NYSE:CRD). This group of stocks’ market valuations are similar to VRAY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLNE 8 18073 -2
CSTE 10 14694 1
ZYXI 7 8332 0
CRD 10 49389 0
Average 8.75 22622 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $82 million in VRAY’s case. Caesarstone Ltd (NASDAQ:CSTE) is the most popular stock in this table. On the other hand Zynex, Inc. (NASDAQ:ZYXI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks ViewRay, Inc. (NASDAQ:VRAY) 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 gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately VRAY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VRAY were disappointed as the stock returned -10.4% during the second quarter 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.