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Is ALLO A Good Stock To Buy According To Hedge Funds?

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In this article we are going to use hedge fund sentiment as a tool and determine whether Allogene Therapeutics, Inc. (NASDAQ:ALLO) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is ALLO a good stock to buy now? Allogene Therapeutics, Inc. (NASDAQ:ALLO) investors should pay attention to a decrease in enthusiasm from smart money lately. Allogene Therapeutics, Inc. (NASDAQ:ALLO) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 24. Our calculations also showed that ALLO 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.

Lei Zhang Hillhouse Capital
Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

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 15 best blue chip stocks 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 we're going to analyze the new hedge fund action surrounding Allogene Therapeutics, Inc. (NASDAQ:ALLO).

Do Hedge Funds Think ALLO Is A Good Stock To Buy Now?

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in ALLO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Allogene Therapeutics, Inc. (NASDAQ:ALLO) was held by Wildcat Capital Management, which reported holding $57.2 million worth of stock at the end of September. It was followed by Perceptive Advisors with a $43.1 million position. Other investors bullish on the company included Casdin Capital, Hillhouse Capital Management, and Woodline Partners. In terms of the portfolio weights assigned to each position Wildcat Capital Management allocated the biggest weight to Allogene Therapeutics, Inc. (NASDAQ:ALLO), around 18.27% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 1.6 percent of its 13F equity portfolio to ALLO.

Seeing as Allogene Therapeutics, Inc. (NASDAQ:ALLO) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedge funds who sold off their full holdings in the third quarter. Interestingly, Behzad Aghazadeh's Avoro Capital Advisors (venBio Select Advisor) dropped the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $48.3 million in stock. Daniel Sundheim's fund, D1 Capital Partners, also cut its stock, about $21.4 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds in the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Allogene Therapeutics, Inc. (NASDAQ:ALLO) but similarly valued. These stocks are Hyatt Hotels Corporation (NYSE:H), Invesco Ltd. (NYSE:IVZ), First Horizon Corporation (NYSE:FHN), Axalta Coating Systems Ltd (NYSE:AXTA), MSA Safety Incorporated (NYSE:MSA), Lithia Motors Inc (NYSE:LAD), and Jabil Inc. (NYSE:JBL). This group of stocks' market caps resemble ALLO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position H,26,574829,-1 IVZ,21,600095,-1 FHN,30,378810,-5 AXTA,45,1220833,-2 MSA,14,18753,-12 LAD,49,1149267,18 JBL,31,399819,0 Average,30.9,620344,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $249 million in ALLO's case. Lithia Motors Inc (NYSE:LAD) is the most popular stock in this table. On the other hand MSA Safety Incorporated (NYSE:MSA) is the least popular one with only 14 bullish hedge fund positions. Allogene Therapeutics, Inc. (NASDAQ:ALLO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALLO is 38.3. 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 December 14th and surpassed the market again by 15.8 percentage points. Unfortunately ALLO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALLO investors were disappointed as the stock returned -25.7% since the end of September (through 12/14) 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.

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