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In this article you are going to find out whether hedge funds think Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) 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.
Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) has experienced a decrease in hedge fund sentiment lately. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. Our calculations also showed that DCPH 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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 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.
James E. Flynn of Deerfield 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. Keeping this in mind let's take a look at the recent hedge fund action surrounding Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).
Do Hedge Funds Think DCPH Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DCPH over the last 21 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Redmile Group held the most valuable stake in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), which was worth $245 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $93.4 million worth of shares. OrbiMed Advisors, Alkeon Capital Management, and Deerfield Management 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 Eversept Partners allocated the biggest weight to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), around 4.64% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, setting aside 4.5 percent of its 13F equity portfolio to DCPH.
Because Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) has faced declining sentiment from the smart money, it's easy to see that there lies a certain "tier" of funds who sold off their entire stakes by the end of the third quarter. Intriguingly, Christopher James's Partner Fund Management cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $14.9 million in stock, and Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management was right behind this move, as the fund said goodbye to about $12.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). These stocks are Youdao, Inc. (NYSE:DAO), Crocs, Inc. (NASDAQ:CROX), Immunovant, Inc. (NASDAQ:IMVT), BMC Stock Holdings, Inc. (NASDAQ:BMCH), Momo Inc (NASDAQ:MOMO), Digital Turbine Inc (NASDAQ:APPS), and Univar Solutions Inc (NYSE:UNVR). All of these stocks' market caps are similar to DCPH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAO,10,290560,-3 CROX,35,653957,-2 IMVT,29,562531,-2 BMCH,31,571107,5 MOMO,30,362883,-4 APPS,23,332289,5 UNVR,30,839273,-1 Average,26.9,516086,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $516 million. That figure was $630 million in DCPH's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 10 bullish hedge fund positions. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DCPH is 73. 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 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately DCPH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DCPH were disappointed as the stock returned 6.9% since the end of September (through 12/18) 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.
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Disclosure: None. This article was originally published at Insider Monkey.