Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like BioSpecifics Technologies Corp. (NASDAQ:BSTC).
BioSpecifics Technologies Corp. (NASDAQ:BSTC) has seen an increase in enthusiasm from smart money of late. Our calculations also showed that BSTC 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_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's view the recent hedge fund action encompassing BioSpecifics Technologies Corp. (NASDAQ:BSTC).
How are hedge funds trading BioSpecifics Technologies Corp. (NASDAQ:BSTC)?
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in BSTC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in BioSpecifics Technologies Corp. (NASDAQ:BSTC) was held by Renaissance Technologies, which reported holding $30.6 million worth of stock at the end of September. It was followed by Royce & Associates with a $10.8 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and Winton Capital Management. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to BioSpecifics Technologies Corp. (NASDAQ:BSTC), around 0.14% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to BSTC.
Now, some big names have jumped into BioSpecifics Technologies Corp. (NASDAQ:BSTC) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most valuable position in BioSpecifics Technologies Corp. (NASDAQ:BSTC). Marshall Wace had $0.9 million invested in the company at the end of the quarter.
Let's now take a look at hedge fund activity in other stocks similar to BioSpecifics Technologies Corp. (NASDAQ:BSTC). We will take a look at AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), Himax Technologies, Inc. (NASDAQ:HIMX), Roadrunner Transportation Systems, Inc. (NYSE:RRTS), and Avedro, Inc. (NASDAQ:AVDR). This group of stocks' market values are similar to BSTC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMAG,15,188076,-2 HIMX,2,10401,-6 RRTS,3,356938,1 AVDR,7,116451,-1 Average,6.75,167967,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $59 million in BSTC's case. AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) is the most popular stock in this table. On the other hand Himax Technologies, Inc. (NASDAQ:HIMX) is the least popular one with only 2 bullish hedge fund positions. BioSpecifics Technologies Corp. (NASDAQ:BSTC) 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 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. Unfortunately BSTC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BSTC were disappointed as the stock returned 2.8% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.