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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 (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 NeoGenomics, Inc. (NASDAQ:NEO) at the end of the second quarter and determine whether the smart money was really smart about this stock.
NeoGenomics, Inc. (NASDAQ:NEO) has seen an increase in support from the world's most elite money managers recently. NeoGenomics, Inc. (NASDAQ:NEO) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that NEO 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Sander Gerber of Hudson Bay Capital
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. Now we're going to take a look at the latest hedge fund action encompassing NeoGenomics, Inc. (NASDAQ:NEO).
Hedge fund activity in NeoGenomics, Inc. (NASDAQ:NEO)
At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NEO over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in NeoGenomics, Inc. (NASDAQ:NEO). Arrowstreet Capital has a $18.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Driehaus Capital, led by Richard Driehaus, holding a $18.2 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Christiana Goh Bardon's Burrage Capital Management, Chuck Royce's Royce & Associates and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Burrage Capital Management allocated the biggest weight to NeoGenomics, Inc. (NASDAQ:NEO), around 4.12% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 0.52 percent of its 13F equity portfolio to NEO.
As industrywide interest jumped, some big names were breaking ground themselves. Hudson Bay Capital Management, managed by Sander Gerber, initiated the biggest position in NeoGenomics, Inc. (NASDAQ:NEO). Hudson Bay Capital Management had $2.3 million invested in the company at the end of the quarter. Thyra Zerhusen's Fairpointe Capital also made a $1.9 million investment in the stock during the quarter. The other funds with brand new NEO positions are Ira Unschuld's Brant Point Investment Management, Lawrence Hawkins's Prosight Capital, and Jerome Pfund and Michael Sjostrom's Sectoral Asset Management.
Let's now review hedge fund activity in other stocks similar to NeoGenomics, Inc. (NASDAQ:NEO). We will take a look at bluebird bio Inc (NASDAQ:BLUE), Enstar Group Ltd. (NASDAQ:ESGR), Rayonier Inc. (NYSE:RYN), UniFirst Corp (NYSE:UNF), Unum Group (NYSE:UNM), Marriott Vacations Worldwide Corporation (NYSE:VAC), and South State Corporation (NASDAQ:SSB). This group of stocks' market caps match NEO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLUE,37,388598,10 ESGR,12,329338,1 RYN,17,299169,4 UNF,19,86425,2 UNM,22,210972,-3 VAC,24,381087,-1 SSB,24,79638,12 Average,22.1,253604,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $65 million in NEO's case. bluebird bio Inc (NASDAQ:BLUE) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. NeoGenomics, Inc. (NASDAQ:NEO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NEO is 47.8. 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. A small number of hedge funds were also right about betting on NEO as the stock returned 19.1% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.