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Were Hedge Funds Right About Selling Cutera, Inc. (CUTR)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Cutera, Inc. (NASDAQ:CUTR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Cutera, Inc. (NASDAQ:CUTR) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that CUTR 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Mario Gabelli of GAMCO Investors

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 we’re going to take a glance at the recent hedge fund action surrounding Cutera, Inc. (NASDAQ:CUTR).

What have hedge funds been doing with Cutera, Inc. (NASDAQ:CUTR)?

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CUTR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Cutera, Inc. (NASDAQ:CUTR) was held by GAMCO Investors, which reported holding $14.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $8.7 million position. Other investors bullish on the company included Voce Capital, Two Sigma Advisors, and Archon Capital Management. In terms of the portfolio weights assigned to each position Voce Capital allocated the biggest weight to Cutera, Inc. (NASDAQ:CUTR), around 3.89% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, setting aside 0.66 percent of its 13F equity portfolio to CUTR.

Seeing as Cutera, Inc. (NASDAQ:CUTR) has experienced a decline in interest from the smart money, it’s easy to see that there were a few funds who sold off their entire stakes last quarter. Intriguingly, C. Jonathan Gattman’s Cloverdale Capital Management cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $7.9 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also cut its stock, about $4.9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cutera, Inc. (NASDAQ:CUTR) but similarly valued. These stocks are Mesabi Trust (NYSE:MSB), EVI Industries Inc (NYSE:EVI), Luna Innovations Incorporated (NASDAQ:LUNA), and Endeavour Silver Corp. (NYSE:EXK). This group of stocks’ market valuations match CUTR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSB 2 10828 -6
EVI 1 12505 -2
LUNA 12 27646 -2
EXK 4 8058 -1
Average 4.75 14759 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $35 million in CUTR’s case. Luna Innovations Incorporated (NASDAQ:LUNA) is the most popular stock in this table. On the other hand EVI Industries Inc (NYSE:EVI) is the least popular one with only 1 bullish hedge fund positions. Cutera, Inc. (NASDAQ:CUTR) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately CUTR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CUTR were disappointed as the stock returned -6.8% 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.

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