There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Genomic Health, Inc. (NASDAQ:GHDX).
Genomic Health, Inc. (NASDAQ:GHDX) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that GHDX isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the key hedge fund action surrounding Genomic Health, Inc. (NASDAQ:GHDX).
How have hedgies been trading Genomic Health, Inc. (NASDAQ:GHDX)?
At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GHDX over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Genomic Health, Inc. (NASDAQ:GHDX) was held by Baker Bros. Advisors, which reported holding $538.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $163.7 million position. Other investors bullish on the company included GLG Partners, Millennium Management, and AQR Capital Management.
Because Genomic Health, Inc. (NASDAQ:GHDX) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their positions entirely heading into Q3. Interestingly, David Costen Haley's HBK Investments dropped the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $2.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $1.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Genomic Health, Inc. (NASDAQ:GHDX) but similarly valued. These stocks are Sprouts Farmers Market Inc (NASDAQ:SFM), Belden Inc. (NYSE:BDC), Granite Construction Incorporated (NYSE:GVA), and Matador Resources Co (NYSE:MTDR). This group of stocks' market caps resemble GHDX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SFM,22,259090,1 BDC,15,81149,-1 GVA,11,65578,-4 MTDR,12,240162,-2 Average,15,161495,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $880 million in GHDX's case. Sprouts Farmers Market Inc (NASDAQ:SFM) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. Genomic Health, Inc. (NASDAQ:GHDX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on GHDX as the stock returned 16.6% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.