Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) changed recently.
Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) has seen an increase in support from the world's most elite money managers of late. Our calculations also showed that ELOX 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.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
[caption id="attachment_758434" align="aligncenter" width="450"] Nathan Fischel of DAFNA Capital Management[/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. With all of this in mind let's take a gander at the latest hedge fund action surrounding Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX).
What have hedge funds been doing with Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ELOX over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) was held by DAFNA Capital Management, which reported holding $1.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.1 million position. The only other hedge fund that is bullish on the company was Millennium Management.
With a general bullishness amongst the heavyweights, some big names have jumped into Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) headfirst. Renaissance Technologies established the biggest position in Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX). Renaissance Technologies had $0.1 million invested in the company at the end of the quarter.
Let's go over hedge fund activity in other stocks similar to Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX). These stocks are C&F Financial Corporation (NASDAQ:CFFI), GNC Holdings Inc (NYSE:GNC), Coastal Financial Corporation (NASDAQ:CCB), and Two River Bancorp (NASDAQ:TRCB). This group of stocks' market values match ELOX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFFI,3,8008,1 GNC,10,15157,0 CCB,3,19904,1 TRCB,5,14422,2 Average,5.25,14373,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $2 million in ELOX's case. GNC Holdings Inc (NYSE:GNC) is the most popular stock in this table. On the other hand C&F Financial Corporation (NASDAQ:CFFI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Eloxx Pharmaceuticals, Inc. (NASDAQ:ELOX) is even less popular than CFFI. Hedge funds clearly dropped the ball on ELOX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 ELOX as the stock returned 15.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.