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 Puma Biotechnology Inc (NASDAQ:PBYI).
Puma Biotechnology Inc (NASDAQ:PBYI) shareholders have witnessed a decrease in hedge fund sentiment lately. Our calculations also showed that PBYI 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let's take a peek at the new hedge fund action regarding Puma Biotechnology Inc (NASDAQ:PBYI).
What does smart money think about Puma Biotechnology Inc (NASDAQ:PBYI)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PBYI 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.
Of the funds tracked by Insider Monkey, Partner Fund Management, managed by Christopher James, holds the most valuable position in Puma Biotechnology Inc (NASDAQ:PBYI). Partner Fund Management has a $36.1 million position in the stock, comprising 0.7% of its 13F portfolio. Coming in second is Alex Denner of Sarissa Capital Management, with a $18 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of William Leland Edwards's Palo Alto Investors, Ken Griffin's Citadel Investment Group and Samuel Isaly's OrbiMed Advisors.
Since Puma Biotechnology Inc (NASDAQ:PBYI) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies that slashed their positions entirely last quarter. At the top of the heap, Jeffrey Jay and David Kroin's Great Point Partners cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $34.9 million in call options. Israel Englander's fund, Millennium Management, also said goodbye to its call options, about $5.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Puma Biotechnology Inc (NASDAQ:PBYI). These stocks are Napco Security Technologies Inc (NASDAQ:NSSC), Nine Energy Service, Inc. (NYSE:NINE), Independent Bank Corporation (NASDAQ:IBCP), and Barnes & Noble, Inc. (NYSE:BKS). This group of stocks' market valuations are similar to PBYI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSSC,5,12007,-2 NINE,6,37428,-4 IBCP,11,46909,0 BKS,12,40157,-6 Average,8.5,34125,-3 [/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 $130 million in PBYI's case. Barnes & Noble, Inc. (NYSE:BKS) is the most popular stock in this table. On the other hand Napco Security Technologies Inc (NASDAQ:NSSC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Puma Biotechnology Inc (NASDAQ:PBYI) is more popular among hedge funds. 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 PBYI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PBYI were disappointed as the stock returned -15.3% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.