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 Eton Pharmaceutcials, Inc. (NASDAQ:ETON).
Eton Pharmaceutcials, Inc. (NASDAQ:ETON) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. At the end of this article we will also compare ETON to other stocks including Eagle Bancorp Montana Inc (NASDAQ:EBMT), Mammoth Energy Services, Inc. (NASDAQ:TUSK), and Garrison Capital Inc (NASDAQ:GARS) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_322510" align="aligncenter" width="464"] New York Stock Exchange[/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. Keeping this in mind we're going to take a peek at the latest hedge fund action encompassing Eton Pharmaceutcials, Inc. (NASDAQ:ETON).
How are hedge funds trading Eton Pharmaceutcials, Inc. (NASDAQ:ETON)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ETON over the last 17 quarters. 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, Opaleye Management was the largest shareholder of Eton Pharmaceutcials, Inc. (NASDAQ:ETON), with a stake worth $7.4 million reported as of the end of September. Trailing Opaleye Management was Diametric Capital, which amassed a stake valued at $1 million. Springbok Capital was 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 Opaleye Management allocated the biggest weight to Eton Pharmaceutcials, Inc. (NASDAQ:ETON), around 2.66% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, earmarking 0.85 percent of its 13F equity portfolio to ETON.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks similar to Eton Pharmaceutcials, Inc. (NASDAQ:ETON). These stocks are Eagle Bancorp Montana Inc (NASDAQ:EBMT), Mammoth Energy Services, Inc. (NASDAQ:TUSK), Garrison Capital Inc (NASDAQ:GARS), and BioXcel Therapeutics, Inc. (NASDAQ:BTAI). All of these stocks' market caps match ETON's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EBMT,3,8924,0 TUSK,9,56496,0 GARS,2,423,0 BTAI,3,2923,2 Average,4.25,17192,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $9 million in ETON's case. Mammoth Energy Services, Inc. (NASDAQ:TUSK) is the most popular stock in this table. On the other hand Garrison Capital Inc (NASDAQ:GARS) is the least popular one with only 2 bullish hedge fund positions. Eton Pharmaceutcials, Inc. (NASDAQ:ETON) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ETON wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ETON investors were disappointed as the stock returned 1.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.