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Hedge Fund Sentiment Is Stagnant On Vaxcyte, Inc. (PCVX)

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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Vaxcyte, Inc. (NASDAQ:PCVX).

Vaxcyte, Inc. (NASDAQ:PCVX) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds' portfolios at the end of the second quarter of 2021. Our calculations also showed that PCVX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Tompkins Financial Corporation (NYSE:TMP), ESSA Pharma Inc. (NASDAQ:EPIX), and Amerisafe, Inc. (NASDAQ:AMSF) to gather more data points.

If you'd ask most market participants, hedge funds are seen as slow, outdated financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers hone in on the aristocrats of this club, around 850 funds. These investment experts watch over bulk of the hedge fund industry's total capital, and by observing their unrivaled investments, Insider Monkey has identified various investment strategies that have historically surpassed the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

Peter Kolchinsky of RA Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to analyze the new hedge fund action encompassing Vaxcyte, Inc. (NASDAQ:PCVX).

Do Hedge Funds Think PCVX Is A Good Stock To Buy Now?

At the end of June, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in PCVX over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Vaxcyte, Inc. (NASDAQ:PCVX) was held by RA Capital Management, which reported holding $87 million worth of stock at the end of June. It was followed by Frazier Healthcare Partners with a $52 million position. Other investors bullish on the company included OrbiMed Advisors, Ikarian Capital, and Soleus Capital. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Vaxcyte, Inc. (NASDAQ:PCVX), around 4.79% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, setting aside 1.4 percent of its 13F equity portfolio to PCVX.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Perceptive Advisors. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Ghost Tree Capital).

Let's also examine hedge fund activity in other stocks similar to Vaxcyte, Inc. (NASDAQ:PCVX). These stocks are Tompkins Financial Corporation (NYSE:TMP), ESSA Pharma Inc. (NASDAQ:EPIX), Amerisafe, Inc. (NASDAQ:AMSF), Repare Therapeutics Inc. (NASDAQ:RPTX), Green Brick Partners Inc (NASDAQ:GRBK), Metromile, Inc. (NASDAQ:MILE), and The Aaron's Company, Inc. (NYSE:AAN). This group of stocks' market valuations resemble PCVX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMP,6,4022,1 EPIX,26,359343,-2 AMSF,14,51894,6 RPTX,16,441483,-2 GRBK,14,449163,-4 MILE,15,137738,-4 AAN,15,85410,-3 Average,15.1,218436,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $202 million in PCVX's case. ESSA Pharma Inc. (NASDAQ:EPIX) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) is the least popular one with only 6 bullish hedge fund positions. Vaxcyte, Inc. (NASDAQ:PCVX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCVX is 40. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on PCVX as the stock returned 16.3% since the end of the second quarter (through 9/27) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.