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Hedge Funds Cashing Out Of EXACT Sciences Corporation (EXAS)

Debasis Saha

In this article you are going to find out whether hedge funds think EXACT Sciences Corporation (NASDAQ:EXAS) is a good investment 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.

Is EXACT Sciences Corporation (NASDAQ:EXAS) a cheap investment right now? The best stock pickers are taking a pessimistic view. The number of long hedge fund bets went down by 7 in recent months. Our calculations also showed that EXAS 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). 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 51 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.

[caption id="attachment_26082" align="aligncenter" width="400"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action surrounding EXACT Sciences Corporation (NASDAQ:EXAS).

How have hedgies been trading EXACT Sciences Corporation (NASDAQ:EXAS)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in EXAS 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.

Is EXAS A Good Stock To Buy?

Among these funds, Viking Global held the most valuable stake in EXACT Sciences Corporation (NASDAQ:EXAS), which was worth $140.8 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $107.1 million worth of shares. Zevenbergen Capital Investments, Sachem Head Capital, and Rock Springs Capital Management 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 Zevenbergen Capital Investments allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 3.92% of its 13F portfolio. RiverPark Advisors is also relatively very bullish on the stock, designating 2.91 percent of its 13F equity portfolio to EXAS.

Judging by the fact that EXACT Sciences Corporation (NASDAQ:EXAS) has experienced a decline in interest from hedge fund managers, we can see that there were a few hedge funds who sold off their full holdings last quarter. Interestingly, Mitchell Blutt's Consonance Capital Management sold off the biggest investment of the 750 funds monitored by Insider Monkey, valued at about $53.6 million in stock, and Daniel Sundheim's D1 Capital Partners was right behind this move, as the fund dropped about $25.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to EXACT Sciences Corporation (NASDAQ:EXAS). We will take a look at Allegion plc (NYSE:ALLE), Pinnacle West Capital Corporation (NYSE:PNW), Cheniere Energy, Inc. (NYSE:LNG), and Molina Healthcare, Inc. (NYSE:MOH). This group of stocks' market valuations are similar to EXAS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLE,31,404344,6 PNW,25,923395,0 LNG,39,1880676,-4 MOH,32,1223084,-3 Average,31.75,1107875,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1108 million. That figure was $514 million in EXAS's case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand Pinnacle West Capital Corporation (NYSE:PNW) is the least popular one with only 25 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on EXAS as the stock returned 48.1% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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