Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Adamas Pharmaceuticals Inc (NASDAQ:ADMS) to find out whether it was one of their high conviction long-term ideas.
Is Adamas Pharmaceuticals Inc (NASDAQ:ADMS) a worthy stock to buy now? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund bets retreated by 1 lately. Our calculations also showed that ADMS isn't among the 30 most popular stocks among hedge funds. ADMS was in 11 hedge funds' portfolios at the end of the first quarter of 2019. There were 12 hedge funds in our database with ADMS holdings at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a gander at the key hedge fund action regarding Adamas Pharmaceuticals Inc (NASDAQ:ADMS).
How are hedge funds trading Adamas Pharmaceuticals Inc (NASDAQ:ADMS)?
Heading into the second quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in ADMS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Armistice Capital held the most valuable stake in Adamas Pharmaceuticals Inc (NASDAQ:ADMS), which was worth $19.5 million at the end of the first quarter. On the second spot was Broadfin Capital which amassed $17.6 million worth of shares. Moreover, Point72 Asset Management, Millennium Management, and Sectoral Asset Management were also bullish on Adamas Pharmaceuticals Inc (NASDAQ:ADMS), allocating a large percentage of their portfolios to this stock.
Since Adamas Pharmaceuticals Inc (NASDAQ:ADMS) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds who sold off their full holdings by the end of the third quarter. Interestingly, Jim Simons's Renaissance Technologies said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, totaling an estimated $2.8 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $1.9 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Adamas Pharmaceuticals Inc (NASDAQ:ADMS) but similarly valued. We will take a look at Nuvectra Corporation (NASDAQ:NVTR), Millendo Therapeutics, Inc. (NASDAQ:MLND), American Realty Investors, Inc. (NYSE:ARL), and Norwood Financial Corp. (NASDAQ:NWFL). All of these stocks' market caps are similar to ADMS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVTR,12,25571,-4 MLND,9,48888,2 ARL,1,482,0 NWFL,2,1768,1 Average,6,19177,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $61 million in ADMS's case. Nuvectra Corporation (NASDAQ:NVTR) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Adamas Pharmaceuticals Inc (NASDAQ:ADMS) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ADMS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ADMS were disappointed as the stock returned -27.4% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.