In this article you are going to find out whether hedge funds think DermTech, Inc. (NASDAQ:DMTK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
DermTech, Inc. (NASDAQ:DMTK) investors should pay attention to an increase in activity from the world's largest hedge funds lately. Our calculations also showed that DMTK isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_567991" align="aligncenter" width="400"] Joseph Edelman of Perceptive Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's go over the latest hedge fund action regarding DermTech, Inc. (NASDAQ:DMTK).
How have hedgies been trading DermTech, Inc. (NASDAQ:DMTK)?
At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in DMTK a year ago. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Farallon Capital was the largest shareholder of DermTech, Inc. (NASDAQ:DMTK), with a stake worth $6.8 million reported as of the end of September. Trailing Farallon Capital was Casdin Capital, which amassed a stake valued at $5.6 million. Perceptive Advisors, Pura Vida Investments, and Millennium 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 Casdin Capital allocated the biggest weight to DermTech, Inc. (NASDAQ:DMTK), around 0.6% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, dishing out 0.54 percent of its 13F equity portfolio to DMTK.
As aggregate interest increased, specific money managers were breaking ground themselves. Casdin Capital, managed by Eli Casdin, created the largest position in DermTech, Inc. (NASDAQ:DMTK). Casdin Capital had $5.6 million invested in the company at the end of the quarter. Joseph Edelman's Perceptive Advisors also initiated a $3.2 million position during the quarter. The only other fund with a new position in the stock is Efrem Kamen's Pura Vida Investments.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as DermTech, Inc. (NASDAQ:DMTK) but similarly valued. We will take a look at Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), Mallinckrodt Public Limited Company (NYSE:MNK), BRT Apartments Corp (NYSE:BRT), and Oasis Midstream Partners LP (NASDAQ:OMP). This group of stocks' market valuations match DMTK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EIGR,27,64702,2 MNK,18,17899,-2 BRT,6,9850,2 OMP,3,2880,-1 Average,13.5,23833,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $19 million in DMTK's case. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NASDAQ:OMP) is the least popular one with only 3 bullish hedge fund positions. DermTech, Inc. (NASDAQ:DMTK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately DMTK wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DMTK investors were disappointed as the stock returned 10.2% during the second 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.
Disclosure: None. This article was originally published at Insider Monkey.