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In this article we will check out the progression of hedge fund sentiment towards Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) 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 Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) a good stock to buy now? Money managers were selling. The number of bullish hedge fund bets dropped by 1 in recent months. Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) was in 7 hedge funds' portfolios at the end of September. The all time high for this statistics is 12. Our calculations also showed that GLMD 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). There were 8 hedge funds in our database with GLMD holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.
Felix Baker of Baker Bros.
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. Now let's review the recent hedge fund action encompassing Galmed Pharmaceuticals Ltd (NASDAQ:GLMD).
What does smart money think about Galmed Pharmaceuticals Ltd (NASDAQ:GLMD)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in GLMD a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) was held by Nantahala Capital Management, which reported holding $7.3 million worth of stock at the end of September. It was followed by Biotechnology Value Fund / BVF Inc with a $6.4 million position. Other investors bullish on the company included Baker Bros. Advisors, P.A.W. CAPITAL PARTNERS, and Voss Capital. In terms of the portfolio weights assigned to each position P.A.W. CAPITAL PARTNERS allocated the biggest weight to Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), around 0.77% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to GLMD.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Vivo Capital. 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 GLMD as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to Galmed Pharmaceuticals Ltd (NASDAQ:GLMD). These stocks are Armstrong Flooring, Inc. (NYSE:AFI), Consumer Portfolio Services, Inc. (NASDAQ:CPSS), Issuer Direct Corporation (NYSE:ISDR), Kitov Pharma Ltd. (NASDAQ:KTOV), Hill International Inc (NYSE:HIL), Evolution Petroleum Corporation (NYSE:EPM), and Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN). This group of stocks' market caps are closest to GLMD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AFI,12,23266,-3 CPSS,1,1379,0 ISDR,3,1574,0 KTOV,2,1528,-1 HIL,10,21411,1 EPM,10,7562,1 GRIN,1,4420,-1 Average,5.6,8734,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.6 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $16 million in GLMD's case. Armstrong Flooring, Inc. (NYSE:AFI) is the most popular stock in this table. On the other hand Consumer Portfolio Services, Inc. (NASDAQ:CPSS) is the least popular one with only 1 bullish hedge fund positions. Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GLMD is 48.8. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on GLMD, though not to the same extent, as the stock returned 10.2% since Q3 (through December 2nd) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.