XBiotech Inc. (XBIT): Are Hedge Funds Right About This Stock?

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards XBiotech Inc. (NASDAQ:XBIT) and see how it was affected.

Is XBiotech Inc. (NASDAQ:XBIT) a first-rate investment now? Investors who are in the know are getting less optimistic. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that XBIT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). XBIT was in 6 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with XBIT positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most investors, hedge funds are assumed to be underperforming, old financial tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the top tier of this group, about 750 funds. These money managers direct the majority of all hedge funds’ total asset base, and by watching their inimitable stock picks, Insider Monkey has figured out several investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a peek at the recent hedge fund action surrounding XBiotech Inc. (NASDAQ:XBIT).

Hedge fund activity in XBiotech Inc. (NASDAQ:XBIT)

Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XBIT over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in XBiotech Inc. (NASDAQ:XBIT) was held by Baker Bros. Advisors, which reported holding $5.5 million worth of stock at the end of September. It was followed by 683 Capital Partners with a $0.6 million position. Other investors bullish on the company included Winton Capital Management, Birchview Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to XBiotech Inc. (NASDAQ:XBIT), around 0.21% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to XBIT.

Due to the fact that XBiotech Inc. (NASDAQ:XBIT) has experienced a decline in interest from the smart money, we can see that there exists a select few hedge funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the biggest position of all the hedgies watched by Insider Monkey, worth an estimated $1.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.1 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as XBiotech Inc. (NASDAQ:XBIT) but similarly valued. These stocks are Verso Corporation (NYSE:VRS), United States Lime & Minerals, Inc. (NASDAQ:USLM), Evolus, Inc. (NASDAQ:EOLS), and Jernigan Capital Inc (NYSE:JCAP). All of these stocks’ market caps match XBIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VRS 22 117951 0
USLM 3 29576 -1
EOLS 7 12894 -5
JCAP 13 43400 -2
Average 11.25 50955 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $7 million in XBIT’s case. Verso Corporation (NYSE:VRS) is the most popular stock in this table. On the other hand United States Lime & Minerals, Inc. (NASDAQ:USLM) is the least popular one with only 3 bullish hedge fund positions. XBiotech Inc. (NASDAQ:XBIT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on XBIT, though not to the same extent, as the stock returned 9.8% during the first two months of the fourth quarter and outperformed the market.

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