Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% in 2019 (through November 22) and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
PLx Pharma Inc. (NASDAQ:PLXP) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as IVERIC bio, Inc. (NASDAQ:ISEE), Vertex Energy Inc (NASDAQ:VTNR), and Perceptron, Inc. (NASDAQ:PRCP) to gather more data points. Our calculations also showed that PLXP isn't among the 30 most popular stocks among hedge funds.
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_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the key hedge fund action regarding PLx Pharma Inc. (NASDAQ:PLXP).
How have hedgies been trading PLx Pharma Inc. (NASDAQ:PLXP)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 3 hedge funds held shares or bullish call options in PLXP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in PLx Pharma Inc. (NASDAQ:PLXP) was held by Park West Asset Management, which reported holding $7.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.4 million position. The only other hedge fund that is bullish on the company was Millennium Management.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks similar to PLx Pharma Inc. (NASDAQ:PLXP). These stocks are IVERIC bio, Inc. (NASDAQ:ISEE), Vertex Energy Inc (NASDAQ:VTNR), Perceptron, Inc. (NASDAQ:PRCP), and Town Sports International Holdings, Inc. (NASDAQ:CLUB). This group of stocks' market caps match PLXP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ISEE,5,6189,-1 VTNR,6,5800,1 PRCP,6,15601,0 CLUB,9,22210,-1 Average,6.5,12450,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $8 million in PLXP's case. Town Sports International Holdings, Inc. (NASDAQ:CLUB) is the most popular stock in this table. On the other hand IVERIC bio, Inc. (NASDAQ:ISEE) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks PLx Pharma Inc. (NASDAQ:PLXP) is even less popular than ISEE. Hedge funds dodged a bullet by taking a bearish stance towards PLXP. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately PLXP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PLXP investors were disappointed as the stock returned -3.5% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.