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 (Recession is Imminent: We Need A Travel Ban NOW). 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 NovoCure Limited (NASDAQ:NVCR).
Is NovoCure Limited (NASDAQ:NVCR) a cheap stock to buy now? Investors who are in the know are taking a bullish view. The number of long hedge fund bets increased by 5 lately. Our calculations also showed that NVCR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). NVCR was in 27 hedge funds' portfolios at the end of March. There were 22 hedge funds in our database with NVCR positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_261250" align="aligncenter" width="399"] Peter Kolchinsky of RA Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the fresh hedge fund action encompassing NovoCure Limited (NASDAQ:NVCR).
What have hedge funds been doing with NovoCure Limited (NASDAQ:NVCR)?
At Q1's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in NVCR 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.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in NovoCure Limited (NASDAQ:NVCR), worth close to $151.2 million, accounting for 0.1% of its total 13F portfolio. On Renaissance Technologies's heels is Darsana Capital Partners, managed by Anand Desai, which holds a $90.9 million position; 4.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish contain John Overdeck and David Siegel's Two Sigma Advisors, Henrik Rhenman's Rhenman & Partners Asset Management and Peter Kolchinsky's RA Capital Management. In terms of the portfolio weights assigned to each position Darsana Capital Partners allocated the biggest weight to NovoCure Limited (NASDAQ:NVCR), around 4.3% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, dishing out 3.4 percent of its 13F equity portfolio to NVCR.
As aggregate interest increased, some big names were leading the bulls' herd. Rhenman & Partners Asset Management, managed by Henrik Rhenman, established the most valuable position in NovoCure Limited (NASDAQ:NVCR). Rhenman & Partners Asset Management had $24.2 million invested in the company at the end of the quarter. Peter Kolchinsky's RA Capital Management also initiated a $17.4 million position during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as NovoCure Limited (NASDAQ:NVCR) but similarly valued. We will take a look at Royal Caribbean Cruises Ltd. (NYSE:RCL), Equitable Holdings, Inc. (NYSE:EQH), Dynatrace, Inc. (NYSE:DT), and Dr. Reddy's Laboratories Limited (NYSE:RDY). All of these stocks' market caps resemble NVCR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCL,25,405608,-18 EQH,27,821993,-6 DT,35,725860,10 RDY,11,112891,-1 Average,24.5,516588,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $372 million in NVCR's case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 11 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately NVCR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NVCR were disappointed as the stock returned 0.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.