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Is CSTL A Good Stock To Buy Now?

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In this article you are going to find out whether hedge funds think Castle Biosciences, Inc. (NASDAQ:CSTL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Ic CSTL a good stock to buy now? Hedge fund interest in Castle Biosciences, Inc. (NASDAQ:CSTL) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CSTL 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). 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 Suburban Propane Partners LP (NYSE:SPH), DiamondRock Hospitality Company (NYSE:DRH), and Translate Bio, Inc. (NASDAQ:TBIO) to gather more data points.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are many tools shareholders have at their disposal to analyze their stock investments. A couple of the best tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite fund managers can outclass the market by a solid margin (see the details here).

Richard Driehaus of Driehaus Capital

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. Now let's go over the key hedge fund action surrounding Castle Biosciences, Inc. (NASDAQ:CSTL).

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

At third quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in CSTL a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CSTL A Good Stock To Buy?
Is CSTL A Good Stock To Buy?

Among these funds, Highland Capital Management held the most valuable stake in Castle Biosciences, Inc. (NASDAQ:CSTL), which was worth $36.4 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $22.8 million worth of shares. Millennium Management, Citadel Investment Group, and Royce & Associates were 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 Highland Capital Management allocated the biggest weight to Castle Biosciences, Inc. (NASDAQ:CSTL), around 8.23% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 1.12 percent of its 13F equity portfolio to CSTL.

Because Castle Biosciences, Inc. (NASDAQ:CSTL) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there were a few funds who were dropping their positions entirely heading into Q4. Interestingly, Anand Parekh's Alyeska Investment Group sold off the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling close to $5.6 million in stock. Steve Cohen's fund, Point72 Asset Management, also dropped its stock, about $1.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Castle Biosciences, Inc. (NASDAQ:CSTL). These stocks are Suburban Propane Partners LP (NYSE:SPH), DiamondRock Hospitality Company (NYSE:DRH), Translate Bio, Inc. (NASDAQ:TBIO), GenMark Diagnostics, Inc (NASDAQ:GNMK), The Buckle, Inc. (NYSE:BKE), Re/Max Holdings Inc (NYSE:RMAX), and Inseego Corp. (NASDAQ:INSG). This group of stocks' market values match CSTL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPH,3,11375,1 DRH,14,63389,-2 TBIO,23,342432,-3 GNMK,25,297839,1 BKE,18,56050,1 RMAX,11,48168,4 INSG,11,19774,2 Average,15,119861,0.6 [/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 $120 million. That figure was $90 million in CSTL's case. GenMark Diagnostics, Inc (NASDAQ:GNMK) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 3 bullish hedge fund positions. Castle Biosciences, Inc. (NASDAQ:CSTL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CSTL is 69.1. 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. 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 December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CSTL as the stock returned 20.3% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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