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Biolase Inc (BIOL): Hedge Funds In Wait-and-See Mode

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Biolase Inc (NASDAQ:BIOL).

Biolase Inc (NASDAQ:BIOL) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of March. Our calculations also showed that BIOL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 iMedia Brands, Inc. (NASDAQ:IMBI), Old Point Financial Corporation (NASDAQ:OPOF), and First United Corp (NASDAQ:FUNC) 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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management
Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a gander at the latest hedge fund action surrounding Biolase Inc (NASDAQ:BIOL).

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

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 2 hedge funds held shares or bullish call options in BIOL 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.

Is BIOL A Good Stock To Buy?
Is BIOL A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Biolase Inc (NASDAQ:BIOL), with a stake worth $1.9 million reported as of the end of March. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $0.3 million. Millennium Management was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Biolase Inc (NASDAQ:BIOL), around 0.0023% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0001 percent of its 13F equity portfolio to BIOL.

Judging by the fact that Biolase Inc (NASDAQ:BIOL) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that elected to cut their positions entirely last quarter. It's worth mentioning that Ali Motamed's Invenomic Capital Management dropped the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $0.3 million in stock. Hal Mintz's fund, Sabby Capital, also dumped its stock, about $0 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Biolase Inc (NASDAQ:BIOL) but similarly valued. These stocks are iMedia Brands, Inc. (NASDAQ:IMBI), Old Point Financial Corporation (NASDAQ:OPOF), First United Corp (NASDAQ:FUNC), Otonomy Inc (NASDAQ:OTIC), Scopus BioPharma Inc. (NASDAQ:SCPS), First Eagle Alternative Capital BDC, Inc. (NASDAQ:FCRD), and Westwood Holdings Group, Inc. (NYSE:WHG). This group of stocks' market caps resemble BIOL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMBI,5,11520,3 OPOF,2,1411,0 FUNC,2,4659,-3 OTIC,16,44505,-4 SCPS,2,943,1 FCRD,2,11468,-4 WHG,6,19614,0 Average,5,13446,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $2 million in BIOL's case. Otonomy Inc (NASDAQ:OTIC) is the most popular stock in this table. On the other hand Old Point Financial Corporation (NASDAQ:OPOF) is the least popular one with only 2 bullish hedge fund positions. Biolase Inc (NASDAQ:BIOL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BIOL is 19.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately BIOL wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BIOL investors were disappointed as the stock returned 0% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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