Is Harrow Health, Inc. (NASDAQ:HROW) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Hedge fund interest in Harrow Health, Inc. (NASDAQ:HROW) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Medley Capital Corp (NYSE:MCC), Transenterix Inc (NYSE:TRXC), and Paratek Pharmaceuticals Inc (NASDAQ:PRTK) to gather more data points. Our calculations also showed that HROW 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
[caption id="attachment_315176" align="aligncenter" width="450"] Michael Castor of Sio Capital[/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 view the key hedge fund action regarding Harrow Health, Inc. (NASDAQ:HROW).
What have hedge funds been doing with Harrow Health, Inc. (NASDAQ:HROW)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in HROW a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, James A. Silverman's Opaleye Management has the largest position in Harrow Health, Inc. (NASDAQ:HROW), worth close to $13.3 million, corresponding to 4.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism consist of Nick Thakore's Diametric Capital, Michael Castor's Sio Capital and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital. In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to Harrow Health, Inc. (NASDAQ:HROW), around 4.82% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, designating 1.84 percent of its 13F equity portfolio to HROW.
Since Harrow Health, Inc. (NASDAQ:HROW) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few funds that slashed their entire stakes in the third quarter. It's worth mentioning that Israel Englander's Millennium Management said goodbye to the largest investment of the 750 funds watched by Insider Monkey, totaling close to $0.2 million in stock. Ken Griffin's fund, Citadel Investment Group, also sold off its stock, about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Harrow Health, Inc. (NASDAQ:HROW) but similarly valued. These stocks are Medley Capital Corp (NYSE:MCC), Transenterix Inc (NYSE:TRXC), Paratek Pharmaceuticals Inc (NASDAQ:PRTK), and Veru Inc. (NASDAQ:VERU). This group of stocks' market caps are similar to HROW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCC,9,15591,-1 TRXC,10,5716,0 PRTK,13,35920,0 VERU,5,4526,2 Average,9.25,15438,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $27 million in HROW's case. Paratek Pharmaceuticals Inc (NASDAQ:PRTK) is the most popular stock in this table. On the other hand Veru Inc. (NASDAQ:VERU) is the least popular one with only 5 bullish hedge fund positions. Harrow Health, Inc. (NASDAQ:HROW) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on HROW as the stock returned 11.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.