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How Did Deciphera Pharmaceuticals, Inc. (DCPH) Compare Against Top Hedge Fund Stocks in 2019?

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).

Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) investors should be aware of an increase in support from the world's most elite money managers in recent months. DCPH was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 15 hedge funds in our database with DCPH positions at the end of the previous quarter. 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 at the end of this article for Q2 rankings).

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/caption]

Izzy Englander of MILLENNIUM MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's analyze the recent hedge fund action regarding Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).

How have hedgies been trading Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 73% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in DCPH a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is DCPH A Good Stock To Buy?

Among these funds, Redmile Group held the most valuable stake in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), which was worth $162.3 million at the end of the third quarter. On the second spot was Millennium Management which amassed $91.6 million worth of shares. OrbiMed Advisors, Alkeon Capital Management, and Cormorant Asset 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 Redmile Group allocated the biggest weight to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), around 5.43% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, designating 2.82 percent of its 13F equity portfolio to DCPH.

With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Cormorant Asset Management, managed by Bihua Chen, assembled the most valuable position in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). Cormorant Asset Management had $26.8 million invested in the company at the end of the quarter. Farallon Capital also initiated a $25.5 million position during the quarter. The other funds with new positions in the stock are Mark Lampert's Biotechnology Value Fund, Brian Ashford-Russell and Tim Woolley's Polar Capital, and Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) but similarly valued. We will take a look at CSG Systems International, Inc. (NASDAQ:CSGS), Group 1 Automotive, Inc. (NYSE:GPI), Skyline Corporation (NYSE:SKY), and Fanhua Inc. (NASDAQ:FANH). All of these stocks' market caps are closest to DCPH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSGS,19,221276,1 GPI,20,171213,7 SKY,25,283836,0 FANH,8,16703,-1 Average,18,173257,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $543 million in DCPH's case. Skyline Corporation (NYSE:SKY) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is more popular among hedge funds. 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 10.1 percentage points. Hedge funds were also right about betting on DCPH as the stock returned 196.5% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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