Does Arcus Biosciences, Inc. (NYSE:RCUS) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net their stock picks have been generating superior risk-adjusted returns on average over the years.
Arcus Biosciences, Inc. (NYSE:RCUS) was in 11 hedge funds' portfolios at the end of September. RCUS shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. There were 14 hedge funds in our database with RCUS positions at the end of the previous quarter. Our calculations also showed that RCUS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_337892" align="alignnone" width="2480"] Lei Zhang of Hillhouse Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the key hedge fund action surrounding Arcus Biosciences, Inc. (NYSE:RCUS).
How have hedgies been trading Arcus Biosciences, Inc. (NYSE:RCUS)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RCUS over the last 17 quarters. 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 Arcus Biosciences, Inc. (NYSE:RCUS) was held by Biotechnology Value Fund, which reported holding $32.6 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $7 million position. Other investors bullish on the company included EcoR1 Capital, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Biotechnology Value Fund allocated the biggest weight to Arcus Biosciences, Inc. (NYSE:RCUS), around 3.42% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, designating 0.87 percent of its 13F equity portfolio to RCUS.
Seeing as Arcus Biosciences, Inc. (NYSE:RCUS) has witnessed falling interest from the smart money, it's safe to say that there is a sect of fund managers who sold off their positions entirely heading into Q4. At the top of the heap, Jim Tananbaum's Foresite Capital sold off the largest position of the 750 funds monitored by Insider Monkey, totaling close to $10.9 million in stock. Parvinder Thiara's fund, Athanor Capital, also said goodbye to its stock, about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Arcus Biosciences, Inc. (NYSE:RCUS). These stocks are SIGA Technologies Inc. (NASDAQ:SIGA), Cutera, Inc. (NASDAQ:CUTR), Intra-Cellular Therapies Inc (NASDAQ:ITCI), and New Frontier Corp (NYSE:NFC). This group of stocks' market values resembles RCUS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIGA,12,27474,2 CUTR,13,97437,3 ITCI,11,33556,0 NFC,13,71506,1 Average,12.25,57493,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $53 million in RCUS's case. Cutera, Inc. (NASDAQ:CUTR) is the most popular stock in this table. On the other hand, Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Arcus Biosciences, Inc. (NYSE:RCUS) is even less popular than ITCI. Hedge funds dodged a bullet by taking a bearish stance towards RCUS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, RCUS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RCUS investors were disappointed as the stock returned -9.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.