In this article we will check out the progression of hedge fund sentiment towards Castle Biosciences, Inc. (NASDAQ:CSTL) 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 Castle Biosciences, Inc. (NASDAQ:CSTL) undervalued? The smart money is betting on the stock. The number of bullish hedge fund bets improved by 1 recently. Our calculations also showed that CSTL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CSTL was in 9 hedge funds' portfolios at the end of the first quarter of 2020. There were 8 hedge funds in our database with CSTL positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most investors, hedge funds are viewed as underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds in operation at present, We hone in on the crème de la crème of this group, about 850 funds. These money managers preside over the majority of the smart money's total asset base, and by watching their unrivaled picks, Insider Monkey has identified several investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_758454" align="aligncenter" width="393"] James Dondero of Highland Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to view the new hedge fund action surrounding Castle Biosciences, Inc. (NASDAQ:CSTL).
How are hedge funds trading Castle Biosciences, Inc. (NASDAQ:CSTL)?
At Q1's end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CSTL over the last 18 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Highland Capital Management held the most valuable stake in Castle Biosciences, Inc. (NASDAQ:CSTL), which was worth $21.1 million at the end of the third quarter. On the second spot was Driehaus Capital which amassed $12.1 million worth of shares. Millennium Management, Portolan Capital Management, and Pura Vida Investments 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 Highland Capital Management allocated the biggest weight to Castle Biosciences, Inc. (NASDAQ:CSTL), around 3.98% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 0.84 percent of its 13F equity portfolio to CSTL.
Consequently, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, established the largest position in Castle Biosciences, Inc. (NASDAQ:CSTL). Millennium Management had $6.2 million invested in the company at the end of the quarter. Efrem Kamen's Pura Vida Investments also made a $3.3 million investment in the stock during the quarter. The following funds were also among the new CSTL investors: Renaissance Technologies, Steve Cohen's Point72 Asset Management, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's check out hedge fund activity in other stocks similar to Castle Biosciences, Inc. (NASDAQ:CSTL). These stocks are Brookfield Property REIT Inc. (NASDAQ:BPYU), Cass Information Systems, Inc. (NASDAQ:CASS), Vista Outdoor Inc (NYSE:VSTO), and Monarch Casino & Resort, Inc. (NASDAQ:MCRI). This group of stocks' market values are similar to CSTL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BPYU,12,9032,-1 CASS,9,11969,-2 VSTO,19,121745,0 MCRI,15,75297,3 Average,13.75,54511,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $49 million in CSTL's case. Vista Outdoor Inc (NYSE:VSTO) is the most popular stock in this table. On the other hand Cass Information Systems, Inc. (NASDAQ:CASS) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Castle Biosciences, Inc. (NASDAQ:CSTL) is even less popular than CASS. Hedge funds clearly dropped the ball on CSTL as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on CSTL as the stock returned 40.5% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.