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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PTC Therapeutics, Inc. (NASDAQ:PTCT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
PTC Therapeutics, Inc. (NASDAQ:PTCT) investors should be aware of an increase in enthusiasm from smart money lately. PTC Therapeutics, Inc. (NASDAQ:PTCT) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 36. Our calculations also showed that PTCT isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Steven Cohen of Point72 Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to take a look at the new hedge fund action encompassing PTC Therapeutics, Inc. (NASDAQ:PTCT).
What have hedge funds been doing with PTC Therapeutics, Inc. (NASDAQ:PTCT)?
At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in PTCT a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of PTC Therapeutics, Inc. (NASDAQ:PTCT), with a stake worth $66.1 million reported as of the end of September. Trailing Point72 Asset Management was D E Shaw, which amassed a stake valued at $45.4 million. Sectoral Asset Management, Armistice Capital, and Great Point Partners 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 Burrage Capital Management allocated the biggest weight to PTC Therapeutics, Inc. (NASDAQ:PTCT), around 6.37% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, designating 2.43 percent of its 13F equity portfolio to PTCT.
As industrywide interest jumped, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in PTC Therapeutics, Inc. (NASDAQ:PTCT). Arrowstreet Capital had $4.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $1.8 million position during the quarter. The other funds with brand new PTCT positions are Bhagwan Jay Rao's Integral Health Asset Management, Vishal Saluja and Pham Quang's Endurant Capital Management, and Andre F. Perold's HighVista Strategies.
Let's now take a look at hedge fund activity in other stocks similar to PTC Therapeutics, Inc. (NASDAQ:PTCT). These stocks are Air Lease Corp (NYSE:AL), PennyMac Financial Services Inc (NYSE:PFSI), ADC Therapeutics SA (NYSE:ADCT), MasTec, Inc. (NYSE:MTZ), Colfax Corporation (NYSE:CFX), Quaker Chemical Corp (NYSE:KWR), and OneMain Holdings Inc (NYSE:OMF). This group of stocks' market valuations are closest to PTCT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AL,22,618666,2 PFSI,25,351948,1 ADCT,15,490195,15 MTZ,29,160492,5 CFX,39,607479,7 KWR,13,159316,5 OMF,37,342546,3 Average,25.7,390092,5.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $390 million. That figure was $278 million in PTCT's case. Colfax Corporation (NYSE:CFX) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 13 bullish hedge fund positions. PTC Therapeutics, Inc. (NASDAQ:PTCT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTCT is 68.4. 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 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately PTCT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PTCT were disappointed as the stock returned -4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.