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Kaleido BioSciences, Inc. (KLDO): Are Hedge Funds Right About This Stock?

Debasis Saha
·5 min read

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Kaleido BioSciences, Inc. (NASDAQ:KLDO) based on that data.

Kaleido BioSciences, Inc. (NASDAQ:KLDO) has seen an increase in hedge fund interest in recent months. Our calculations also showed that KLDO 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 44 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_758402" align="aligncenter" width="400"] William Leland Edwards of Palo Alto Investors[/caption]

William Leland Edwards of Palo Alto Investors
William Leland Edwards of Palo Alto Investors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a glance at the key hedge fund action surrounding Kaleido BioSciences, Inc. (NASDAQ:KLDO).

How have hedgies been trading Kaleido BioSciences, Inc. (NASDAQ:KLDO)?

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KLDO over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is KLDO A Good Stock To Buy?
Is KLDO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Palo Alto Investors, managed by William Leland Edwards, holds the biggest position in Kaleido BioSciences, Inc. (NASDAQ:KLDO). Palo Alto Investors has a $4.8 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to Kaleido BioSciences, Inc. (NASDAQ:KLDO), around 0.41% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, designating 0.0002 percent of its 13F equity portfolio to KLDO.

As one would reasonably expect, key hedge funds have jumped into Kaleido BioSciences, Inc. (NASDAQ:KLDO) headfirst. Millennium Management, managed by Israel Englander, created the largest position in Kaleido BioSciences, Inc. (NASDAQ:KLDO). Millennium Management had $0.1 million invested in the company at the end of the quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Kaleido BioSciences, Inc. (NASDAQ:KLDO) but similarly valued. These stocks are Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), Emerald Expositions Events, Inc. (NYSE:EEX), Falcon Minerals Corporation (NASDAQ:FLMN), and Greenhill & Co., Inc. (NYSE:GHL). This group of stocks' market valuations match KLDO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STXB,4,9654,0 EEX,11,5613,1 FLMN,22,29270,3 GHL,11,12536,2 Average,12,14268,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $5 million in KLDO's case. Falcon Minerals Corporation (NASDAQ:FLMN) is the most popular stock in this table. On the other hand Spirit of Texas Bancshares, Inc. (NASDAQ:STXB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Kaleido BioSciences, Inc. (NASDAQ:KLDO) is even less popular than STXB. Hedge funds dodged a bullet by taking a bearish stance towards KLDO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately KLDO wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); KLDO investors were disappointed as the stock returned 7.5% during the second quarter (through May 22nd) 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 so far in 2020.

Disclosure: None. This article was originally published at Insider Monkey.

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