Where Do Hedge Funds Stand On Nephros, Inc. (NEPH)?

In this article we will check out the progression of hedge fund sentiment towards Nephros, Inc. (NASDAQ:NEPH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Nephros, Inc. (NASDAQ:NEPH) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 5. NEPH investors should pay attention to a decrease in hedge fund interest lately. There were 5 hedge funds in our database with NEPH positions at the end of the second quarter. Our calculations also showed that NEPH 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

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. 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 website. With all of this in mind let’s take a glance at the fresh hedge fund action regarding Nephros, Inc. (NASDAQ:NEPH).

How have hedgies been trading Nephros, Inc. (NASDAQ:NEPH)?

At third quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 1 hedge funds with a bullish position in NEPH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Charles Davidson and Joseph Jacobs’s Wexford Capital has the largest position in Nephros, Inc. (NASDAQ:NEPH), worth close to $24.6 million, corresponding to 6.6% of its total 13F portfolio. The second largest stake is held by Parkman Healthcare Partners, managed by Greg Martinez, which holds a $1.7 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish contain Israel Englander’s Millennium Management, Alan S. Parsow’s Elkhorn Partners and . In terms of the portfolio weights assigned to each position Wexford Capital allocated the biggest weight to Nephros, Inc. (NASDAQ:NEPH), around 6.57% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to NEPH.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NEPH as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Nephros, Inc. (NASDAQ:NEPH) but similarly valued. We will take a look at Cyren Ltd (NASDAQ:CYRN), ConforMIS, Inc. (NASDAQ:CFMS), EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT), Natural Health Trends Corp. (NASDAQ:NHTC), TETRA Technologies, Inc. (NYSE:TTI), Cortland Bancorp (NASDAQ:CLDB), and HMN Financial, Inc. (NASDAQ:HMNF). This group of stocks’ market caps match NEPH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CYRN 3 3226 -1
CFMS 7 14796 -3
EYPT 3 122 -2
NHTC 4 5579 0
TTI 12 11274 -1
CLDB 2 6881 1
HMNF 3 11876 -1
Average 4.9 7679 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $27 million in NEPH’s case. TETRA Technologies, Inc. (NYSE:TTI) is the most popular stock in this table. On the other hand Cortland Bancorp (NASDAQ:CLDB) is the least popular one with only 2 bullish hedge fund positions. Nephros, Inc. (NASDAQ:NEPH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEPH is 38. 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 negative signal and 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 surpassed the market again by 16.1 percentage points. Unfortunately NEPH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEPH investors were disappointed as the stock returned -16.2% 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 most of these stocks already outperformed the market in 2020.

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