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Should You Avoid NanoString Technologies Inc (NSTG)?

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Asma UL Husna
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Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is NanoString Technologies Inc (NASDAQ:NSTG) the right pick for your portfolio? Money managers are becoming less confident. The number of bullish hedge fund positions retreated by 2 in recent months. Our calculations also showed that NSTG isn't among the 30 most popular stocks among hedge funds (see the video below).

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

NSTG_oct2019
NSTG_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the fresh hedge fund action encompassing NanoString Technologies Inc (NASDAQ:NSTG).

What have hedge funds been doing with NanoString Technologies Inc (NASDAQ:NSTG)?

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NSTG over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

D. E. Shaw
D. E. Shaw

According to Insider Monkey's hedge fund database, Cadian Capital, managed by Eric Bannasch, holds the biggest position in NanoString Technologies Inc (NASDAQ:NSTG). Cadian Capital has a $46.4 million position in the stock, comprising 2.1% of its 13F portfolio. The second largest stake is held by Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $22.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Efrem Kamen's Pura Vida Investments, Israel Englander's Millennium Management and D. E. Shaw's D E Shaw.

Due to the fact that NanoString Technologies Inc (NASDAQ:NSTG) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few funds that elected to cut their full holdings in the second quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management dumped the largest position of the 750 funds monitored by Insider Monkey, worth close to $2.3 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also dumped its stock, about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the second quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as NanoString Technologies Inc (NASDAQ:NSTG) but similarly valued. These stocks are Enviva Partners, LP (NYSE:EVA), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), Nabors Industries Ltd. (NYSE:NBR), and Quotient Technology Inc (NYSE:QUOT). All of these stocks' market caps are closest to NSTG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVA,7,83902,0 PLYA,18,405569,-1 NBR,22,104959,-8 QUOT,13,226231,-3 Average,15,205165,-3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $211 million in NSTG's case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 7 bullish hedge fund positions. NanoString Technologies Inc (NASDAQ:NSTG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NSTG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NSTG were disappointed as the stock returned -28.9% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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