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Alger Weatherbie Specialized Growth Fund: “We Believe NeoGenomics (NEO) is in the Sweet Spot”

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  • NEO

Alger, an investment management firm, published its “Alger Weatherbie Specialized Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. During the quarter, the largest portfolio sector weightings were Financials and Health Care. The largest sector overweight was Financials. Class A shares of the Alger Weatherbie Specialized Growth Fund outperformed the Russell 2500 Growth Index during the second quarter of 2021.. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Alger Weatherbie Specialized Growth Fund, the fund mentioned NeoGenomics, Inc. (NASDAQ: NEO), and discussed its stance on the firm. NeoGenomics, Inc. is a Fort Myers, Florida-based testing laboratories company, that currently has a $5.2 billion market capitalization. NEO delivered a -21.25% return since the beginning of the year, while its 12-month returns are up by 5.29%. The stock closed at $41.66 per share on August 11, 2021.

Here is what Alger Weatherbie Specialized Growth Fund has to say about NeoGenomics, Inc. in its Q2 2021 investor letter:

"NeoGenomics, Inc. was among the top detractors from performance. NeoGenomics is a clinical laboratory company, which engages in cancer genetics diagnostic testing and pharma services. It operates through its Clinical Services and Pharma Services segments. The company is a pure-play oncology lab that operates in a fragmented $2 billion oncology testing market that is growing 6%-8% annually, driven by innovation in precision medicine/oncology therapeutics. We believe NeoGenomics is in the sweet spot where it can take share from bigger competitors who don't focus solely on oncology or offer customization while the company is also taking market share from smaller players who can't match NeoGenomics' breadth of menu, scale and payer contracts.

NeoGenomics announced a solid quarterly earnings report beating estimates on revenue, but below estimates on profitability. The company announced the acquisition of the remainder of lnivata, a liquid biopsy company, for $390 million which comes ahead of schedule and within the expected purchase price range. The weak performance of NeoGenomics shares was tied to the company significantly lowering its profitability guidance, a result of the lnivata acquisition. Management has reported that lnivata adds as much as $35 million of annual operating expenses and anticipates that the company will provide limited revenue until late 2022 or early 2023 when it commercializes the company's RADAR, which is its key product, a liquid biopsy system for detecting cancer."


Based on our calculations, NeoGenomics, Inc. (NASDAQ: NEO) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. NEO was in 15 hedge fund portfolios at the end of the first quarter of 2021. NeoGenomics, Inc. (NASDAQ: NEO) delivered a 16.47% return in the past 3 months.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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