The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards EDAP TMS S.A. (NASDAQ:EDAP), and what that likely means for the prospects of the company and its stock.
Is EDAP TMS S.A. (NASDAQ:EDAP) an exceptional investment now? Hedge funds are taking a bullish view. The number of long hedge fund positions increased by 2 recently. Our calculations also showed that EDAP 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="alignnone" width="1613"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to take a glance at the fresh hedge fund action encompassing EDAP TMS S.A. (NASDAQ:EDAP).
How are hedge funds trading EDAP TMS S.A. (NASDAQ:EDAP)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EDAP over the last 17 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in EDAP TMS S.A. (NASDAQ:EDAP) was held by Archon Capital Management, which reported holding $2.7 million worth of stock at the end of September. It was followed by Opaleye Management with a $1.3 million position. Other investors bullish on the company included Manatuck Hill Partners, Diametric Capital, and Springbok Capital. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to EDAP TMS S.A. (NASDAQ:EDAP), around 0.63% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, earmarking 0.49 percent of its 13F equity portfolio to EDAP.
As aggregate interest increased, specific money managers have been driving this bullishness. Opaleye Management, managed by James A. Silverman, created the largest position in EDAP TMS S.A. (NASDAQ:EDAP). Opaleye Management had $1.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $0 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as EDAP TMS S.A. (NASDAQ:EDAP) but similarly valued. These stocks are Strongbridge Biopharma plc (NASDAQ:SBBP), Ion Geophysical Corp (NYSE:IO), Kala Pharmaceuticals, Inc. (NASDAQ:KALA), and Nymox Pharmaceutical Corporation (NASDAQ:NYMX). This group of stocks' market valuations resemble EDAP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBBP,9,23435,-1 IO,6,14738,-1 KALA,9,41580,1 NYMX,4,960,0 Average,7,20178,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $6 million in EDAP's case. Strongbridge Biopharma plc (NASDAQ:SBBP) is the most popular stock in this table. On the other hand Nymox Pharmaceutical Corporation (NASDAQ:NYMX) is the least popular one with only 4 bullish hedge fund positions. EDAP TMS S.A. (NASDAQ:EDAP) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on EDAP as the stock returned 12.7% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.