We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
Is Merrimack Pharmaceuticals Inc (NASDAQ:MACK) undervalued? The smart money was buying. The number of long hedge fund bets went up by 1 in recent months. Merrimack Pharmaceuticals Inc (NASDAQ:MACK) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that MACK isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to analyze the key hedge fund action surrounding Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
How have hedgies been trading Merrimack Pharmaceuticals Inc (NASDAQ:MACK)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MACK over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Noah Levy and Eugene Dozortsev’s Newtyn Management has the largest position in Merrimack Pharmaceuticals Inc (NASDAQ:MACK), worth close to $5.2 million, amounting to 1.3% of its total 13F portfolio. On Newtyn Management’s heels is Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, which holds a $3 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish comprise John Hempton’s Bronte Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Merrimack Pharmaceuticals Inc (NASDAQ:MACK), around 1.26% of its 13F portfolio. Bronte Capital is also relatively very bullish on the stock, dishing out 0.36 percent of its 13F equity portfolio to MACK.
Consequently, key hedge funds were leading the bulls’ herd. Bronte Capital, managed by John Hempton, assembled the largest position in Merrimack Pharmaceuticals Inc (NASDAQ:MACK). Bronte Capital had $2.1 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Merrimack Pharmaceuticals Inc (NASDAQ:MACK) but similarly valued. These stocks are Soligenix, Inc. (NASDAQ:SNGX), Verb Technology Company, Inc. (NASDAQ:VERB), Full House Resorts, Inc. (NASDAQ:FLL), Bioanalytical Systems, Inc. (NASDAQ:BASI), Capstone Turbine Corporation (NASDAQ:CPST), Gulf Resources, Inc. (NASDAQ:GURE), and PDS Biotechnology Corporation (NASDAQ:PDSB). This group of stocks’ market valuations match MACK’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.4 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $10 million in MACK’s case. Full House Resorts, Inc. (NASDAQ:FLL) is the most popular stock in this table. On the other hand Bioanalytical Systems, Inc. (NASDAQ:BASI) is the least popular one with only 1 bullish hedge fund positions. Merrimack Pharmaceuticals Inc (NASDAQ:MACK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MACK is 36.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately MACK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MACK were disappointed as the stock returned -4.3% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.