Were Hedge Funds Right About Odonate Therapeutics, Inc. (ODT)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Odonate Therapeutics, Inc. (NASDAQ:ODT).

Odonate Therapeutics, Inc. (NASDAQ:ODT) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that ODT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the key hedge fund action regarding Odonate Therapeutics, Inc. (NASDAQ:ODT).

Hedge fund activity in Odonate Therapeutics, Inc. (NASDAQ:ODT)

Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ODT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Odonate Therapeutics, Inc. (NASDAQ:ODT) was held by Tang Capital Management, which reported holding $456.7 million worth of stock at the end of September. It was followed by Redmile Group with a $25.6 million position. Other investors bullish on the company included Driehaus Capital, Samsara BioCapital, and Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Tang Capital Management allocated the biggest weight to Odonate Therapeutics, Inc. (NASDAQ:ODT), around 54.57% of its 13F portfolio. Samsara BioCapital is also relatively very bullish on the stock, earmarking 8.13 percent of its 13F equity portfolio to ODT.

As aggregate interest increased, some big names were breaking ground themselves. PDT Partners, managed by Peter Muller, created the most outsized position in Odonate Therapeutics, Inc. (NASDAQ:ODT). PDT Partners had $0.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.3 million position during the quarter. The only other fund with a brand new ODT position is Cliff Asness’s AQR Capital Management.

Let’s now review hedge fund activity in other stocks similar to Odonate Therapeutics, Inc. (NASDAQ:ODT). These stocks are Lindsay Corporation (NYSE:LNN), Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), 3D Systems Corporation (NYSE:DDD), and Hanger, Inc. (NYSE:HNGR). All of these stocks’ market caps resemble ODT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LNN 9 202475 1
VLRS 11 114895 3
DDD 19 48902 6
HNGR 15 82071 -1
Average 13.5 112086 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $556 million in ODT’s case. 3D Systems Corporation (NYSE:DDD) is the most popular stock in this table. On the other hand Lindsay Corporation (NYSE:LNN) is the least popular one with only 9 bullish hedge fund positions. Odonate Therapeutics, Inc. (NASDAQ:ODT) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately ODT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ODT were disappointed as the stock returned -21.4% during the same time period 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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