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 Protalix BioTherapeutics Inc. (NYSE:PLX).
Is Protalix BioTherapeutics Inc. (NYSE:PLX) ready to rally soon? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets went down by 1 recently. Our calculations also showed that PLX isn't among the 30 most popular stocks among hedge funds. PLX was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with PLX positions 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_373490" align="aligncenter" width="640"] Wall Street Bull[/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. We're going to take a look at the recent hedge fund action encompassing Protalix BioTherapeutics Inc. (NYSE:PLX).
What have hedge funds been doing with Protalix BioTherapeutics Inc. (NYSE:PLX)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PLX over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Protalix BioTherapeutics Inc. (NYSE:PLX), which was worth $0.9 million at the end of the third quarter. On the second spot was Pura Vida Investments which amassed $0.3 million worth of shares. Citadel Investment Group was 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 Pura Vida Investments allocated the biggest weight to Protalix BioTherapeutics Inc. (NYSE:PLX), around 0.12% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0008 percent of its 13F equity portfolio to PLX.
Because Protalix BioTherapeutics Inc. (NYSE:PLX) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there exists a select few money managers that elected to cut their entire stakes in the third quarter. It's worth mentioning that James A. Silverman's Opaleye Management dropped the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $0.5 million in call options, and Efrem Kamen's Pura Vida Investments was right behind this move, as the fund dumped about $0 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Protalix BioTherapeutics Inc. (NYSE:PLX). We will take a look at Hudson Technologies, Inc. (NASDAQ:HDSN), Envision Solar International, Inc. (NASDAQ:EVSI), Key Energy Services, Inc. (NYSE:KEG), and Altimmune, Inc. (NASDAQ:ALT). This group of stocks' market valuations match PLX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HDSN,3,512,-1 EVSI,3,1538,0 KEG,4,6430,-4 ALT,4,303,1 Average,3.5,2196,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $1 million in PLX's case. Key Energy Services, Inc. (NYSE:KEG) is the most popular stock in this table. On the other hand Hudson Technologies, Inc. (NASDAQ:HDSN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Protalix BioTherapeutics Inc. (NYSE:PLX) is even less popular than HDSN. Hedge funds clearly dropped the ball on PLX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on PLX as the stock returned 19% during the fourth quarter (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.