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Did Hedge Funds Drop The Ball On NeoGenomics, Inc. (NEO) ?

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like NeoGenomics, Inc. (NASDAQ:NEO).

Is NeoGenomics, Inc. (NASDAQ:NEO) a great investment right now? The smart money is selling. The number of bullish hedge fund positions were trimmed by 3 recently. Our calculations also showed that NEO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the eyes of most shareholders, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation today, Our researchers look at the aristocrats of this club, about 750 funds. Most estimates calculate that this group of people preside over the lion's share of the smart money's total asset base, and by paying attention to their inimitable picks, Insider Monkey has figured out many investment strategies that have historically outpaced the market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus Capital[/caption]

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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the latest hedge fund action surrounding NeoGenomics, Inc. (NASDAQ:NEO).

How are hedge funds trading NeoGenomics, Inc. (NASDAQ:NEO)?

Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NEO over the last 17 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Driehaus Capital held the most valuable stake in NeoGenomics, Inc. (NASDAQ:NEO), which was worth $8.6 million at the end of the third quarter. On the second spot was Marshall Wace which amassed $6.3 million worth of shares. Royce & Associates, Citadel Investment Group, and Millennium 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 Driehaus Capital allocated the biggest weight to NeoGenomics, Inc. (NASDAQ:NEO), around 0.28% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to NEO.

Judging by the fact that NeoGenomics, Inc. (NASDAQ:NEO) has faced falling interest from the smart money, logic holds that there lies a certain "tier" of funds who were dropping their full holdings last quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising about $6 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund cut about $2.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as NeoGenomics, Inc. (NASDAQ:NEO) but similarly valued. We will take a look at Insight Enterprises, Inc. (NASDAQ:NSIT), PTC Therapeutics, Inc. (NASDAQ:PTCT), National Storage Affiliates Trust (NYSE:NSA), and NovaGold Resources Inc. (NYSE:NG). This group of stocks' market caps match NEO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSIT,21,115936,7 PTCT,34,557929,6 NSA,15,137737,-3 NG,16,211750,6 Average,21.5,255838,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $38 million in NEO's case. PTC Therapeutics, Inc. (NASDAQ:PTCT) is the most popular stock in this table. On the other hand National Storage Affiliates Trust (NYSE:NSA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks NeoGenomics, Inc. (NASDAQ:NEO) is even less popular than NSA. Hedge funds clearly dropped the ball on NEO 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NEO as the stock returned 35% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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