Hedge Funds Have Never Been This Bullish On EXACT Sciences Corporation (EXAS)
Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is EXACT Sciences Corporation (NASDAQ:EXAS) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is EXACT Sciences Corporation (NASDAQ:EXAS) a healthy stock for your portfolio? Money managers are becoming hopeful. The number of bullish hedge fund positions rose by 2 lately. Our calculations also showed that EXAS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). EXAS was in 41 hedge funds' portfolios at the end of December. There were 39 hedge funds in our database with EXAS holdings at the end of the previous quarter.
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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_338175" align="aligncenter" width="400"]
Felix Baker of Baker Bros.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's check out the fresh hedge fund action regarding EXACT Sciences Corporation (NASDAQ:EXAS).
Hedge fund activity in EXACT Sciences Corporation (NASDAQ:EXAS)
Heading into the first quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in EXAS over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the most valuable position in EXACT Sciences Corporation (NASDAQ:EXAS). Baker Bros. Advisors has a $239.1 million position in the stock, comprising 1.3% of its 13F portfolio. Sitting at the No. 2 spot is Viking Global, managed by Andreas Halvorsen, which holds a $191.2 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Nancy Zevenbergen's Zevenbergen Capital Investments, Mitchell Blutt's Consonance Capital Management and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Zevenbergen Capital Investments allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 5.34% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, designating 3.43 percent of its 13F equity portfolio to EXAS.
Consequently, specific money managers have been driving this bullishness. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, assembled the most valuable position in EXACT Sciences Corporation (NASDAQ:EXAS). Baker Bros. Advisors had $239.1 million invested in the company at the end of the quarter. Mitchell Blutt's Consonance Capital Management also initiated a $53.6 million position during the quarter. The other funds with brand new EXAS positions are Daniel Sundheim's D1 Capital Partners, Christopher James's Partner Fund Management, and Kevin Molloy's Iron Triangle Partners.
Let's go over hedge fund activity in other stocks similar to EXACT Sciences Corporation (NASDAQ:EXAS). These stocks are Qorvo Inc (NASDAQ:QRVO), Twilio Inc. (NYSE:TWLO), Annaly Capital Management, Inc. (NYSE:NLY), and HEICO Corporation (NYSE:HEI). This group of stocks' market caps are closest to EXAS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QRVO,45,1784158,7 TWLO,60,2100922,-3 NLY,21,219868,5 HEI,57,1205133,11 Average,45.75,1327520,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $1328 million. That figure was $915 million in EXAS's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Annaly Capital Management, Inc. (NYSE:NLY) is the least popular one with only 21 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately EXAS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EXAS investors were disappointed as the stock returned -54.1% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
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