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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Inogen Inc (NASDAQ:INGN) and determine whether hedge funds had an edge regarding this stock.
Is Inogen Inc (NASDAQ:INGN) the right pick for your portfolio? The smart money was in a bullish mood. The number of bullish hedge fund positions rose by 7 recently. Inogen Inc (NASDAQ:INGN) was in 19 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that INGN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 12 hedge funds in our database with INGN positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's take a gander at the key hedge fund action encompassing Inogen Inc (NASDAQ:INGN).
What have hedge funds been doing with Inogen Inc (NASDAQ:INGN)?
At second quarter's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 58% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INGN over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Inogen Inc (NASDAQ:INGN), worth close to $12.5 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is John Overdeck and David Siegel of Two Sigma Advisors, with a $9.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish consist of D. E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to Inogen Inc (NASDAQ:INGN), around 0.56% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to INGN.
Now, some big names were leading the bulls' herd. Millennium Management, managed by Israel Englander, established the most valuable position in Inogen Inc (NASDAQ:INGN). Millennium Management had $2.3 million invested in the company at the end of the quarter. Michael Castor's Sio Capital also made a $1.9 million investment in the stock during the quarter. The other funds with brand new INGN positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Greg Eisner's Engineers Gate Manager, and Michael Gelband's ExodusPoint Capital.
Let's also examine hedge fund activity in other stocks similar to Inogen Inc (NASDAQ:INGN). We will take a look at State Auto Financial Corporation (NASDAQ:STFC), Anterix Inc. (NASDAQ:ATEX), ProAssurance Corporation (NYSE:PRA), Quanterix Corporation (NASDAQ:QTRX), The Buckle, Inc. (NYSE:BKE), Armada Hoffler Properties Inc (NYSE:AHH), and Raven Industries, Inc. (NASDAQ:RAVN). This group of stocks' market valuations are similar to INGN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STFC,6,8467,0 ATEX,17,395390,6 PRA,17,95940,7 QTRX,8,60160,-2 BKE,17,55191,2 AHH,12,47003,3 RAVN,13,85551,2 Average,12.9,106815,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $42 million in INGN's case. Anterix Inc. (NASDAQ:ATEX) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Inogen Inc (NASDAQ:INGN) is more popular among hedge funds. Our overall hedge fund sentiment score for INGN is 82.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately INGN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on INGN were disappointed as the stock returned -18.4% during the third quarter 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.