Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Compugen Ltd. (NASDAQ:CGEN).
Compugen Ltd. (NASDAQ:CGEN) has experienced a decrease in enthusiasm from smart money lately. Our calculations also showed that CGEN 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.
To most traders, hedge funds are perceived as underperforming, outdated investment tools of the past. While there are over 8000 funds in operation at present, We hone in on the elite of this group, around 750 funds. These hedge fund managers administer the lion's share of all hedge funds' total asset base, and by shadowing their highest performing investments, Insider Monkey has formulated various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year 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_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. 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 already gained 20 percent. With all of this in mind we're going to take a glance at the fresh hedge fund action surrounding Compugen Ltd. (NASDAQ:CGEN).
How have hedgies been trading Compugen Ltd. (NASDAQ:CGEN)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in CGEN a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, holds the biggest position in Compugen Ltd. (NASDAQ:CGEN). Rock Springs Capital Management has a $4.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Renaissance Technologies holding a $2.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise David E. Shaw's D E Shaw, and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Rock Springs Capital Management allocated the biggest weight to Compugen Ltd. (NASDAQ:CGEN), around 0.19% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.0023 percent of its 13F equity portfolio to CGEN.
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 none of the 750+ hedge funds tracked by Insider Monkey identified CGEN as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks similar to Compugen Ltd. (NASDAQ:CGEN). We will take a look at ShotSpotter, Inc. (NASDAQ:SSTI), Tsakos Energy Navigation Limited (NYSE:TNP), ADMA Biologics Inc (NASDAQ:ADMA), and Bluerock Residential Growth REIT, Inc. (NYSE:BRG). This group of stocks' market valuations resemble CGEN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSTI,6,12594,0 TNP,7,27496,1 ADMA,11,105915,1 BRG,13,26088,2 Average,9.25,43023,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $8 million in CGEN's case. Bluerock Residential Growth REIT, Inc. (NYSE:BRG) is the most popular stock in this table. On the other hand ShotSpotter, Inc. (NASDAQ:SSTI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Compugen Ltd. (NASDAQ:CGEN) is even less popular than SSTI. Hedge funds clearly dropped the ball on CGEN 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 CGEN as the stock returned 44% 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.