We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let's see whether BridgeBio Pharma, Inc. (NASDAQ:BBIO) represents 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 net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is BridgeBio Pharma, Inc. (NASDAQ:BBIO) worth your attention right now? Prominent investors are in a bearish mood. The number of bullish hedge fund bets were trimmed by 1 lately. Our calculations also showed that BBIO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BBIO was in 11 hedge funds' portfolios at the end of December. There were 12 hedge funds in our database with BBIO positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_339343" align="aligncenter" width="399"] Brad Farber of Atika Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a peek at the key hedge fund action regarding BridgeBio Pharma, Inc. (NASDAQ:BBIO).
What does smart money think about BridgeBio Pharma, Inc. (NASDAQ:BBIO)?
At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the third quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in BBIO a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in BridgeBio Pharma, Inc. (NASDAQ:BBIO) was held by Viking Global, which reported holding $933.1 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $153.8 million position. Other investors bullish on the company included Perceptive Advisors, Cormorant Asset Management, and Great Point Partners. In terms of the portfolio weights assigned to each position Viking Global allocated the biggest weight to BridgeBio Pharma, Inc. (NASDAQ:BBIO), around 4.37% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, designating 3.51 percent of its 13F equity portfolio to BBIO.
Since BridgeBio Pharma, Inc. (NASDAQ:BBIO) has witnessed falling interest from hedge fund managers, logic holds that there were a few hedgies that elected to cut their entire stakes in the third quarter. At the top of the heap, Christopher Lyle's SCGE Management sold off the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $8.9 million in stock. James E. Flynn's fund, Deerfield Management, also dropped its stock, about $6.2 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to BridgeBio Pharma, Inc. (NASDAQ:BBIO). We will take a look at nVent Electric plc (NYSE:NVT), CIT Group Inc. (NYSE:CIT), KBR, Inc. (NYSE:KBR), and Sabra Health Care REIT Inc (NASDAQ:SBRA). All of these stocks' market caps are closest to BBIO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVT,28,728891,5 CIT,35,956120,6 KBR,29,515428,-2 SBRA,27,307485,15 Average,29.75,626981,6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $1325 million in BBIO's case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks BridgeBio Pharma, Inc. (NASDAQ:BBIO) is even less popular than SBRA. Hedge funds dodged a bullet by taking a bearish stance towards BBIO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately BBIO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BBIO investors were disappointed as the stock returned -28.7% during the same time period 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 most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.