We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like BioSpecifics Technologies Corp. (NASDAQ:BSTC).
BioSpecifics Technologies Corp. (NASDAQ:BSTC) investors should pay attention to a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that BSTC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the fresh hedge fund action encompassing BioSpecifics Technologies Corp. (NASDAQ:BSTC).
What does smart money think about BioSpecifics Technologies Corp. (NASDAQ:BSTC)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BSTC over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in BioSpecifics Technologies Corp. (NASDAQ:BSTC) was held by Renaissance Technologies, which reported holding $33.6 million worth of stock at the end of March. It was followed by AQR Capital Management with a $6.8 million position. Other investors bullish on the company included Millennium Management, Royce & Associates, and GLG Partners.
Since BioSpecifics Technologies Corp. (NASDAQ:BSTC) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few funds who sold off their positions entirely last quarter. It's worth mentioning that Jeffrey Talpins's Element Capital Management said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling close to $0.3 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund dropped about $0.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to BioSpecifics Technologies Corp. (NASDAQ:BSTC). We will take a look at Global Indemnity Limited (NASDAQ:GBLI), Powell Industries, Inc. (NASDAQ:POWL), Noble Corporation plc (NYSE:NE), and Scholar Rock Holding Corporation (NASDAQ:SRRK). This group of stocks' market valuations are similar to BSTC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBLI,6,34765,0 POWL,11,32062,2 NE,16,67086,-7 SRRK,8,52673,3 Average,10.25,46647,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $55 million in BSTC's case. Noble Corporation plc (NYSE:NE) is the most popular stock in this table. On the other hand Global Indemnity Limited (NASDAQ:GBLI) is the least popular one with only 6 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -10.4% 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 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.