Is Intrexon Corp (XON) Going To Burn These Hedge Funds ?
Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Intrexon Corp (NASDAQ:XON) from the perspective of those elite funds.
Intrexon Corp (NASDAQ:XON) was in 10 hedge funds' portfolios at the end of the second quarter of 2019. XON investors should pay attention to an increase in hedge fund sentiment lately. There were 8 hedge funds in our database with XON positions at the end of the previous quarter. Our calculations also showed that XON 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 go over the recent hedge fund action surrounding Intrexon Corp (NASDAQ:XON).
What does smart money think about Intrexon Corp (NASDAQ:XON)?
Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the first quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in XON a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Miller Value Partners was the largest shareholder of Intrexon Corp (NASDAQ:XON), with a stake worth $61.7 million reported as of the end of March. Trailing Miller Value Partners was Miller Value Partners, which amassed a stake valued at $8.5 million. MSDC Management, GMT Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, some big names have jumped into Intrexon Corp (NASDAQ:XON) headfirst. Miller Value Partners, managed by Bill Miller, created the largest position in Intrexon Corp (NASDAQ:XON). Miller Value Partners had $61.7 million invested in the company at the end of the quarter. Bill Miller's Miller Value Partners also initiated a $8.5 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, David Cohen and Harold Levy's Iridian Asset Management, and OZ Management.
Let's now take a look at hedge fund activity in other stocks similar to Intrexon Corp (NASDAQ:XON). These stocks are Encore Wire Corporation (NASDAQ:WIRE), Editas Medicine, Inc. (NASDAQ:EDIT), 1st Source Corporation (NASDAQ:SRCE), and American Finance Trust, Inc. (NASDAQ:AFIN). All of these stocks' market caps are closest to XON's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WIRE,15,48049,-1 EDIT,14,114839,-1 SRCE,6,28585,-3 AFIN,4,7811,-5 Average,9.75,49821,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $83 million in XON's case. Encore Wire Corporation (NASDAQ:WIRE) is the most popular stock in this table. On the other hand American Finance Trust, Inc. (NASDAQ:AFIN) is the least popular one with only 4 bullish hedge fund positions. Intrexon Corp (NASDAQ:XON) 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 XON wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XON were disappointed as the stock returned -25.3% 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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