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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 817 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 ChromaDex Corporation (NASDAQ:CDXC).
Is ChromaDex (CDXC) a good stock to buy now? Hedge fund interest in ChromaDex Corporation (NASDAQ:CDXC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CDXC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare CDXC to other stocks including Financial Institutions, Inc. (NASDAQ:FISI), Franklin Covey Co. (NYSE:FC), and Investors Title Company (NASDAQ:ITIC) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Roger Ibbotson of Zebra Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let's go over the new hedge fund action regarding ChromaDex Corporation (NASDAQ:CDXC).
How have hedgies been trading ChromaDex Corporation (NASDAQ:CDXC)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in CDXC over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in ChromaDex Corporation (NASDAQ:CDXC) was held by Millennium Management, which reported holding $0.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $0.6 million position. Other investors bullish on the company included Zebra Capital Management, Renaissance Technologies, and Algert Coldiron Investors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to ChromaDex Corporation (NASDAQ:CDXC), around 0.51% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to CDXC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 AQR Capital Management).
Let's now review hedge fund activity in other stocks similar to ChromaDex Corporation (NASDAQ:CDXC). We will take a look at Financial Institutions, Inc. (NASDAQ:FISI), Franklin Covey Co. (NYSE:FC), Investors Title Company (NASDAQ:ITIC), Party City Holdco Inc (NYSE:PRTY), Gold Standard Ventures Corp (NYSE:GSV), Lannett Company, Inc. (NYSE:LCI), and Paratek Pharmaceuticals Inc (NASDAQ:PRTK). This group of stocks' market valuations resemble CDXC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FISI,11,16276,0 FC,10,12289,-2 ITIC,6,32769,0 PRTY,12,49255,-2 GSV,7,21541,2 LCI,10,26062,1 PRTK,9,19459,-3 Average,9.3,25379,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $2 million in CDXC's case. Party City Holdco Inc (NYSE:PRTY) is the most popular stock in this table. On the other hand Investors Title Company (NASDAQ:ITIC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks ChromaDex Corporation (NASDAQ:CDXC) is even less popular than ITIC. Our overall hedge fund sentiment score for CDXC is 35. 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. Hedge funds clearly dropped the ball on CDXC as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on CDXC as the stock returned 24.9% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.