While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors kept their optimism regarding the current bull run in the fourth quarter, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Puma Biotechnology Inc (NASDAQ:PBYI).
Hedge fund interest in Puma Biotechnology Inc (NASDAQ:PBYI) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Meridian Interstate Bancorp, Inc. (NASDAQ:EBSB), TCG BDC, Inc. (NASDAQ:CGBD), and Winnebago Industries, Inc. (NYSE:WGO) to gather more data points.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let's take a look at the fresh hedge fund action regarding Puma Biotechnology Inc (NASDAQ:PBYI).
What does the smart money think about Puma Biotechnology Inc (NASDAQ:PBYI)?
At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in PBYI 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.
More specifically, OrbiMed Advisors was the largest shareholder of Puma Biotechnology Inc (NASDAQ:PBYI), with a stake worth $52.9 million reported as of the end of December. Trailing OrbiMed Advisors was Great Point Partners, which amassed a stake valued at $28.1 million. Sarissa Capital Management, Millennium Management, and Camber Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Puma Biotechnology Inc (NASDAQ:PBYI) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their full holdings last quarter. It's worth mentioning that Mitchell Blutt's Consonance Capital Management dropped the largest stake of all the hedgies followed by Insider Monkey, worth close to $105.6 million in stock, and Christopher James's Partner Fund Management was right behind this move, as the fund dumped about $84.9 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Puma Biotechnology Inc (NASDAQ:PBYI) but similarly valued. These stocks are Meridian Bancorp, Inc. (NASDAQ:EBSB), TCG BDC, Inc. (NASDAQ:CGBD), Winnebago Industries, Inc. (NYSE:WGO), and Verso Corporation (NYSE:VRS). This group of stocks' market caps are similar to PBYI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EBSB,10,62764,-3 CGBD,10,13377,6 WGO,15,79269,-2 VRS,22,153046,0 Average,14.25,77114,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $248 million in PBYI's case. Verso Corporation (NYSE:VRS) is the most popular stock in this table. On the other hand Meridian Bancorp, Inc. (NASDAQ:EBSB) is the least popular one with only 10 bullish hedge fund positions. Puma Biotechnology Inc (NASDAQ:PBYI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on PBYI as the stock returned 66.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.