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 TG Therapeutics Inc (NASDAQ:TGTX).
TG Therapeutics Inc (NASDAQ:TGTX) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that TGTX 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.
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 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. 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_261250" align="aligncenter" width="450"] Peter Kolchinsky of RA Capital Management[/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 take a gander at the fresh hedge fund action surrounding TG Therapeutics Inc (NASDAQ:TGTX).
How are hedge funds trading TG Therapeutics Inc (NASDAQ:TGTX)?
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in TGTX a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander's Millennium Management has the largest position in TG Therapeutics Inc (NASDAQ:TGTX), worth close to $42.2 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Peter Kolchinsky of RA Capital Management, with a $38.6 million position; 2.3% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions contain Roberto Mignone's Bridger Management, Kamran Moghtaderi's Eversept Partners and James Dondero's Highland Capital Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to TG Therapeutics Inc (NASDAQ:TGTX), around 2.3% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to TGTX.
As industrywide interest jumped, key hedge funds were leading the bulls' herd. Intrinsic Edge Capital, managed by Mark Coe, established the biggest call position in TG Therapeutics Inc (NASDAQ:TGTX). Intrinsic Edge Capital had $0.6 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $0.1 million investment in the stock during the quarter. The other funds with brand new TGTX positions are Joel Greenblatt's Gotham Asset Management and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now review hedge fund activity in other stocks similar to TG Therapeutics Inc (NASDAQ:TGTX). These stocks are Kodiak Sciences Inc (NASDAQ:KOD), GTT Communications Inc (NYSE:GTT), A10 Networks Inc (NYSE:ATEN), and Gogo Inc (NASDAQ:GOGO). This group of stocks' market values match TGTX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KOD,6,204922,-2 GTT,13,183431,-5 ATEN,17,105496,2 GOGO,17,104257,2 Average,13.25,149527,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $115 million in TGTX's case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand Kodiak Sciences Inc (NASDAQ:KOD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks TG Therapeutics Inc (NASDAQ:TGTX) is more popular among hedge funds. 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. Hedge funds were also right about betting on TGTX as the stock returned 45.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.