Is Arcus Biosciences, Inc. (NYSE:RCUS) a good bet right now? We like to analyze hedge fund sentiment before doing 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.
Hedge fund interest in Arcus Biosciences, Inc. (NYSE:RCUS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Surgery Partners, Inc. (NASDAQ:SGRY), Blue Bird Corporation (NASDAQ:BLBD), and Crawford & Company (NYSE:CRD) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action surrounding Arcus Biosciences, Inc. (NYSE:RCUS).
Hedge fund activity in Arcus Biosciences, Inc. (NYSE:RCUS)
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RCUS over the last 14 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.
When looking at the institutional investors followed by Insider Monkey, Mark Lampert's Biotechnology Value Fund / BVF Inc has the most valuable position in Arcus Biosciences, Inc. (NYSE:RCUS), worth close to $26 million, accounting for 3.4% of its total 13F portfolio. Coming in second is Jim Tananbaum of Foresite Capital, with a $21.9 million position; the fund has 7.2% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Oleg Nodelman's EcoR1 Capital, Lei Zhang's Hillhouse Capital Management and Christopher James's Partner Fund Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Bailard Inc).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Arcus Biosciences, Inc. (NYSE:RCUS) but similarly valued. These stocks are Surgery Partners, Inc. (NASDAQ:SGRY), Blue Bird Corporation (NASDAQ:BLBD), Crawford & Company (NYSE:CRD), and Donnelley Financial Solutions, Inc. (NYSE:DFIN). This group of stocks' market values match RCUS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGRY,9,27358,0 BLBD,7,70468,-11 CRD,6,26707,-1 DFIN,19,54777,5 Average,10.25,44828,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $70 million in RCUS's case. Donnelley Financial Solutions, Inc. (NYSE:DFIN) is the most popular stock in this table. On the other hand Crawford & Company (NYSE:CRD) is the least popular one with only 6 bullish hedge fund positions. Arcus Biosciences, Inc. (NYSE:RCUS) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RCUS wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); RCUS investors were disappointed as the stock returned 1.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.