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Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about INMODE LTD. (NASDAQ:INMD).
Is INMODE LTD. (NASDAQ:INMD) a bargain? Investors who are in the know are getting more optimistic. The number of bullish hedge fund positions moved up by 7 recently. Our calculations also showed that INMD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). INMD was in 7 hedge funds' portfolios at the end of September. There were 0 hedge funds in our database with INMD positions at the end of the previous quarter.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Michael Castor of Sio Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's go over the new hedge fund action regarding INMODE LTD. (NASDAQ:INMD).
What have hedge funds been doing with INMODE LTD. (NASDAQ:INMD)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INMD 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, Miura Global Management, managed by Pasco Alfaro / Richard Tumure, holds the number one position in INMODE LTD. (NASDAQ:INMD). Miura Global Management has a $11.8 million position in the stock, comprising 2.1% of its 13F portfolio. The second most bullish fund manager is Michael Castor of Sio Capital, with a $5.8 million position; 1.9% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Miura Global Management allocated the biggest weight to INMODE LTD. (NASDAQ:INMD), around 2.08% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 1.87 percent of its 13F equity portfolio to INMD.
Consequently, key hedge funds have jumped into INMODE LTD. (NASDAQ:INMD) headfirst. Miura Global Management, managed by Pasco Alfaro / Richard Tumure, established the biggest position in INMODE LTD. (NASDAQ:INMD). Miura Global Management had $11.8 million invested in the company at the end of the quarter. Michael Castor's Sio Capital also made a $5.8 million investment in the stock during the quarter. The following funds were also among the new INMD investors: Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Israel Englander's Millennium Management, and Ken Griffin's Citadel Investment Group.
Let's also examine hedge fund activity in other stocks similar to INMODE LTD. (NASDAQ:INMD). These stocks are Adecoagro SA (NYSE:AGRO), Mesoblast Limited (NASDAQ:MESO), Newpark Resources Inc (NYSE:NR), and Kura Oncology, Inc. (NASDAQ:KURA). This group of stocks' market values resemble INMD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGRO,16,152604,4 MESO,2,576,1 NR,10,25078,2 KURA,18,192205,-4 Average,11.5,92616,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $24 million in INMD's case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 2 bullish hedge fund positions. INMODE LTD. (NASDAQ:INMD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on INMD as the stock returned 135.5% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.