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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 ALX Oncology Holdings Inc. (NASDAQ:ALXO).
Is ALXO a good stock to buy now? Investors who are in the know were getting more bullish. The number of long hedge fund bets increased by 9 lately. ALX Oncology Holdings Inc. (NASDAQ:ALXO) was in 9 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that ALXO 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 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 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 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.
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. Now we're going to take a look at the key hedge fund action regarding ALX Oncology Holdings Inc. (NASDAQ:ALXO).
Do Hedge Funds Think ALXO Is A Good Stock To Buy Now?
At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALXO 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.
The largest stake in ALX Oncology Holdings Inc. (NASDAQ:ALXO) was held by Vivo Capital, which reported holding $159.3 million worth of stock at the end of September. It was followed by Logos Capital with a $118.4 million position. Other investors bullish on the company included Cormorant Asset Management, Biotechnology Value Fund / BVF Inc, and Redmile Group. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to ALX Oncology Holdings Inc. (NASDAQ:ALXO), around 15.63% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, setting aside 9.2 percent of its 13F equity portfolio to ALXO.
Now, key money managers have jumped into ALX Oncology Holdings Inc. (NASDAQ:ALXO) headfirst. Vivo Capital, managed by Albert Cha and Frank Kung, initiated the most outsized position in ALX Oncology Holdings Inc. (NASDAQ:ALXO). Vivo Capital had $159.3 million invested in the company at the end of the quarter. Arsani William's Logos Capital also initiated a $118.4 million position during the quarter. The following funds were also among the new ALXO investors: Bihua Chen's Cormorant Asset Management, Mark Lampert's Biotechnology Value Fund / BVF Inc, and Jeremy Green's Redmile Group.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as ALX Oncology Holdings Inc. (NASDAQ:ALXO) but similarly valued. We will take a look at Two Harbors Investment Corp (NYSE:TWO), Axos Financial, Inc. (NYSE:AX), Mednax Inc. (NYSE:MD), SITE Centers Corp. (NYSE:SITC), Chesapeake Utilities Corporation (NYSE:CPK), Tri Continental Corporation (NYSE:TY), and GreenTree Hospitality Group Ltd. (NYSE:GHG). This group of stocks' market caps are closest to ALXO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWO,17,36539,1 AX,15,48303,-2 MD,22,338189,-1 SITC,14,41182,-1 CPK,7,9195,-2 TY,2,556,-1 GHG,7,19299,2 Average,12,70466,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $361 million in ALXO's case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 2 bullish hedge fund positions. ALX Oncology Holdings Inc. (NASDAQ:ALXO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALXO 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on ALXO as the stock returned 95% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.