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In this article we will check out the progression of hedge fund sentiment towards Enanta Pharmaceuticals Inc (NASDAQ:ENTA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is ENTA a good stock to buy now? Hedge fund interest in Enanta Pharmaceuticals Inc (NASDAQ:ENTA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ENTA 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). At the end of this article we will also compare ENTA to other stocks including Banco Macro SA (NYSE:BMA), nLIGHT, Inc. (NASDAQ:LASR), and Teekay LNG Partners L.P. (NYSE:TGP) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Michael Gelband of ExodusPoint Capital
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. With all of this in mind we're going to take a look at the recent hedge fund action encompassing Enanta Pharmaceuticals Inc (NASDAQ:ENTA).
Do Hedge Funds Think ENTA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. By comparison, 17 hedge funds held shares or bullish call options in ENTA a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Farallon Capital held the most valuable stake in Enanta Pharmaceuticals Inc (NASDAQ:ENTA), which was worth $81.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $47.1 million worth of shares. Armistice Capital, GLG Partners, 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 Armistice Capital allocated the biggest weight to Enanta Pharmaceuticals Inc (NASDAQ:ENTA), around 0.87% of its 13F portfolio. Farallon Capital is also relatively very bullish on the stock, setting aside 0.58 percent of its 13F equity portfolio to ENTA.
Seeing as Enanta Pharmaceuticals Inc (NASDAQ:ENTA) has experienced bearish sentiment from the smart money, we can see that there were a few fund managers who sold off their full holdings last quarter. It's worth mentioning that Paul Tudor Jones's Tudor Investment Corp dropped the largest investment of all the hedgies followed by Insider Monkey, totaling close to $0.6 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Enanta Pharmaceuticals Inc (NASDAQ:ENTA). We will take a look at Banco Macro SA (NYSE:BMA), nLIGHT, Inc. (NASDAQ:LASR), Teekay LNG Partners L.P. (NYSE:TGP), Crestwood Equity Partners LP (NYSE:CEQP), Acadia Realty Trust (NYSE:AKR), Rattler Midstream LP (NASDAQ:RTLR), and Liberty Oilfield Services Inc. (NYSE:LBRT). This group of stocks' market valuations are similar to ENTA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMA,9,52055,-2 LASR,13,56683,1 TGP,10,33043,0 CEQP,2,2370,-2 AKR,14,26230,-2 RTLR,7,54320,0 LBRT,7,8097,1 Average,8.9,33257,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.9 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $187 million in ENTA's case. Acadia Realty Trust (NYSE:AKR) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Enanta Pharmaceuticals Inc (NASDAQ:ENTA) is more popular among hedge funds. Our overall hedge fund sentiment score for ENTA is 83.6. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Unfortunately ENTA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ENTA were disappointed as the stock returned -7.2% since the end of the third quarter (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.