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 Dynavax Technologies Corporation (NASDAQ:DVAX).
Is Dynavax Technologies Corporation (NASDAQ:DVAX) an attractive stock to buy now? The best stock pickers are getting more optimistic. The number of long hedge fund bets moved up by 1 recently. Our calculations also showed that DVAX 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.
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_261250" align="alignnone" width="600"] Peter Kolchinsky of RA 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. We're going to take a glance at the key hedge fund action encompassing Dynavax Technologies Corporation (NASDAQ:DVAX).
Hedge fund activity in Dynavax Technologies Corporation (NASDAQ:DVAX)
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DVAX over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Rima Senvest Management was the largest shareholder of Dynavax Technologies Corporation (NASDAQ:DVAX), with a stake worth $17.4 million reported as of the end of September. Trailing Rima Senvest Management was RA Capital Management, which amassed a stake valued at $8.5 million. Rock Springs Capital Management, D E Shaw, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Dynavax Technologies Corporation (NASDAQ:DVAX), around 1.5% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 0.54 percent of its 13F equity portfolio to DVAX.
As one would reasonably expect, key hedge funds were leading the bulls' herd. RA Capital Management, managed by Peter Kolchinsky, created the biggest position in Dynavax Technologies Corporation (NASDAQ:DVAX). RA Capital Management had $8.5 million invested in the company at the end of the quarter. Michael Castor's Sio Capital also initiated a $1.7 million position during the quarter. The following funds were also among the new DVAX investors: Anand Parekh's Alyeska Investment Group and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Dynavax Technologies Corporation (NASDAQ:DVAX) but similarly valued. We will take a look at Avid Bioservices, Inc. (NASDAQ:CDMO), Oxford Square Capital Corp. (NASDAQ:OXSQ), Triple-S Management Corp.(NYSE:GTS), and Gladstone Capital Corporation (NASDAQ:GLAD). This group of stocks' market valuations match DVAX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDMO,8,31838,1 OXSQ,8,6980,3 GTS,18,88802,5 GLAD,5,4387,0 Average,9.75,33002,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $46 million in DVAX's case. Triple-S Management Corp.(NYSE:GTS) is the most popular stock in this table. On the other hand Gladstone Capital Corporation (NASDAQ:GLAD) is the least popular one with only 5 bullish hedge fund positions. Dynavax Technologies Corporation (NASDAQ:DVAX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on DVAX as the stock returned 57.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.