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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 Editas Medicine, Inc. (NASDAQ:EDIT).
Editas Medicine, Inc. (NASDAQ:EDIT) has experienced an increase in enthusiasm from smart money recently. Editas Medicine, Inc. (NASDAQ:EDIT) was in 24 hedge funds' portfolios at the end of March. The all time high for this statistic was previously 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EDIT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
To the average investor there are tons of indicators investors put to use to size up publicly traded companies. Some of the less known indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outclass the broader indices by a healthy margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
John Overdeck of Two Sigma Advisors
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Do Hedge Funds Think EDIT Is A Good Stock To Buy Now?
At first quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in EDIT a year ago. 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 Editas Medicine, Inc. (NASDAQ:EDIT) was held by ARK Investment Management, which reported holding $367.6 million worth of stock at the end of December. It was followed by D E Shaw with a $25.2 million position. Other investors bullish on the company included Two Sigma Advisors, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position ARK Investment Management allocated the biggest weight to Editas Medicine, Inc. (NASDAQ:EDIT), around 0.73% of its 13F portfolio. Brevan Howard is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to EDIT.
As aggregate interest increased, key money managers were leading the bulls' herd. Renaissance Technologies, created the most outsized position in Editas Medicine, Inc. (NASDAQ:EDIT). Renaissance Technologies had $19.1 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also initiated a $2.8 million position during the quarter. The other funds with new positions in the stock are Alan Howard's Brevan Howard, Jay Chen's Himension Capital, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's now take a look at hedge fund activity in other stocks similar to Editas Medicine, Inc. (NASDAQ:EDIT). These stocks are Masonite International Corp (NYSE:DOOR), SITE Centers Corp. (NYSE:SITC), Cooper Tire & Rubber Company (NYSE:CTB), Enable Midstream Partners LP (NYSE:ENBL), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Cedar Fair, L.P. (NYSE:FUN), and Burning Rock Biotech Limited (NASDAQ:BNR). This group of stocks' market valuations resemble EDIT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DOOR,31,405857,3 SITC,9,71139,-2 CTB,24,307379,1 ENBL,6,27004,3 TARO,8,81146,2 FUN,14,157490,0 BNR,11,104426,-1 Average,14.7,164920,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $472 million in EDIT's case. Masonite International Corp (NYSE:DOOR) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. Editas Medicine, Inc. (NASDAQ:EDIT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EDIT is 76. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately EDIT wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EDIT were disappointed as the stock returned 0.9% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.