Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is SurModics, Inc. (NASDAQ:SRDX) undervalued? Money managers are in an optimistic mood. The number of bullish hedge fund bets inched up by 4 recently. Our calculations also showed that SRDX isn't among the 30 most popular stocks among hedge funds. SRDX was in 17 hedge funds' portfolios at the end of December. There were 13 hedge funds in our database with SRDX holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the fresh hedge fund action encompassing SurModics, Inc. (NASDAQ:SRDX).
What does the smart money think about SurModics, Inc. (NASDAQ:SRDX)?
Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in SRDX 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, Renaissance Technologies held the most valuable stake in SurModics, Inc. (NASDAQ:SRDX), which was worth $52.1 million at the end of the fourth quarter. On the second spot was Trigran Investments which amassed $37.6 million worth of shares. Moreover, Royce & Associates, AQR Capital Management, and Millennium Management were also bullish on SurModics, Inc. (NASDAQ:SRDX), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key hedge funds have jumped into SurModics, Inc. (NASDAQ:SRDX) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in SurModics, Inc. (NASDAQ:SRDX). Marshall Wace LLP had $2.7 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as SurModics, Inc. (NASDAQ:SRDX) but similarly valued. These stocks are AC Immune SA (NASDAQ:ACIU), GoPro Inc (NASDAQ:GPRO), Funko, Inc. (NASDAQ:FNKO), and Nova Measuring Instruments Ltd. (NASDAQ:NVMI). This group of stocks' market values resemble SRDX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACIU,8,71314,-1 GPRO,13,47714,-1 FNKO,13,39529,3 NVMI,9,74480,0 Average,10.75,58259,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $144 million in SRDX's case. GoPro Inc (NASDAQ:GPRO) is the most popular stock in this table. On the other hand AC Immune SA (NASDAQ:ACIU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks SurModics, Inc. (NASDAQ:SRDX) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SRDX wasn't nearly as popular as these 15 stock and hedge funds that were betting on SRDX were disappointed as the stock returned -10.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.