Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Evolus, Inc. (NASDAQ:EOLS) to find out whether it was one of their high conviction long-term ideas.
Evolus, Inc. (NASDAQ:EOLS) was in 7 hedge funds' portfolios at the end of the third quarter of 2019. EOLS has experienced a decrease in hedge fund interest lately. There were 12 hedge funds in our database with EOLS holdings at the end of the previous quarter. Our calculations also showed that EOLS 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.
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_27480" align="alignnone" width="600"] Israel Englander of Millennium Management[/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. Let's take a look at the new hedge fund action encompassing Evolus, Inc. (NASDAQ:EOLS).
How are hedge funds trading Evolus, Inc. (NASDAQ:EOLS)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -42% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EOLS over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Cadian Capital held the most valuable stake in Evolus, Inc. (NASDAQ:EOLS), which was worth $5.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $2.7 million worth of shares. Royce & Associates, MFN Partners, and Citadel Investment Group 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 Lee Capital Management allocated the biggest weight to Evolus, Inc. (NASDAQ:EOLS), around 0.58% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, dishing out 0.28 percent of its 13F equity portfolio to EOLS.
Since Evolus, Inc. (NASDAQ:EOLS) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who sold off their positions entirely heading into Q4. At the top of the heap, Steve Cohen's Point72 Asset Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, comprising close to $4.2 million in stock. Lawrence Hawkins's fund, Prosight Capital, also said goodbye to its stock, about $1.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Evolus, Inc. (NASDAQ:EOLS). These stocks are Jernigan Capital Inc (NYSE:JCAP), Luxfer Holdings PLC (NYSE:LXFR), CNX Resources Corporation (NYSE:CEIX), and Precision BioSciences, Inc. (NASDAQ:DTIL). This group of stocks' market valuations resemble EOLS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JCAP,13,43400,-2 LXFR,11,67175,2 CEIX,20,60398,4 DTIL,13,39919,4 Average,14.25,52723,2 [/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 $53 million. That figure was $13 million in EOLS's case. CNX Resources Corporation (NYSE:CEIX) is the most popular stock in this table. On the other hand Luxfer Holdings PLC (NYSE:LXFR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Evolus, Inc. (NASDAQ:EOLS) is even less popular than LXFR. Hedge funds dodged a bullet by taking a bearish stance towards EOLS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EOLS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EOLS investors were disappointed as the stock returned -10.4% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.