Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of 111, Inc. (NASDAQ:YI).
Is 111, Inc. (NASDAQ:YI) undervalued? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that YI isn't among the 30 most popular stocks among hedge funds. YI was in 2 hedge funds' portfolios at the end of the third quarter of 2019. There were 3 hedge funds in our database with YI holdings at the end of the previous quarter.
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_27480" align="aligncenter" width="450"] 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 check out the new hedge fund action encompassing 111, Inc. (NASDAQ:YI).
What have hedge funds been doing with 111, Inc. (NASDAQ:YI)?
At Q3's end, a total of 2 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in YI over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Neal Nathani and Darren Dinneen's Totem Point Management has the biggest position in 111, Inc. (NASDAQ:YI), worth close to $3.2 million, amounting to 1.7% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $0.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Totem Point Management allocated the biggest weight to 111, Inc. (NASDAQ:YI), around 1.74% of its portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.001 percent of its 13F equity portfolio to YI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Chiron Investment Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified YI as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as 111, Inc. (NASDAQ:YI) but similarly valued. We will take a look at Magenta Therapeutics, Inc. (NASDAQ:MGTA), Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI), RBB Bancorp (NASDAQ:RBB), and American National BankShares Inc (NASDAQ:AMNB). This group of stocks' market values are closest to YI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGTA,9,49838,1 ACBI,14,64813,2 RBB,9,13681,4 AMNB,2,9232,0 Average,8.5,34391,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $4 million in YI's case. Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI) is the most popular stock in this table. On the other hand American National BankShares Inc (NASDAQ:AMNB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks 111, Inc. (NASDAQ:YI) is even less popular than AMNB. Hedge funds dodged a bullet by taking a bearish stance towards YI. 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 YI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); YI investors were disappointed as the stock returned 4.7% 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.
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