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Is MODN A Good Stock To Buy According To Hedge Funds?

Asma UL Husna
·6 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Model N Inc (NYSE:MODN).

Is MODN a good stock to buy now? Model N Inc (NYSE:MODN) shareholders have witnessed an increase in enthusiasm from smart money recently. Model N Inc (NYSE:MODN) was in 22 hedge funds' portfolios at the end of September. The all time high for this statistic is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 18 hedge funds in our database with MODN holdings at the end of June. Our calculations also showed that MODN isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's go over the recent hedge fund action regarding Model N Inc (NYSE:MODN).

Do Hedge Funds Think MODN Is A Good Stock To Buy Now?

At the end of September, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the second quarter of 2020. On the other hand, there were a total of 19 hedge funds with a bullish position in MODN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in Model N Inc (NYSE:MODN). Renaissance Technologies has a $72.3 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Dmitry Balyasny of Balyasny Asset Management, with a $11.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish include John Overdeck and David Siegel's Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Model N Inc (NYSE:MODN), around 1.82% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, setting aside 1.5 percent of its 13F equity portfolio to MODN.

Consequently, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Model N Inc (NYSE:MODN). Balyasny Asset Management had $11.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $4.2 million position during the quarter. The other funds with new positions in the stock are Mika Toikka's AlphaCrest Capital Management, Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital), and Matthew Hulsizer's PEAK6 Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Model N Inc (NYSE:MODN) but similarly valued. These stocks are TTM Technologies, Inc. (NASDAQ:TTMI), Luminex Corporation (NASDAQ:LMNX), COMPASS Pathways Plc (NASDAQ:CMPS), MFA Financial, Inc. (NYSE:MFA), The St. Joe Company (NYSE:JOE), Epizyme Inc (NASDAQ:EPZM), and TechTarget Inc (NASDAQ:TTGT). All of these stocks' market caps are closest to MODN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TTMI,20,124165,2 LMNX,29,234236,2 CMPS,17,139456,17 MFA,18,38012,2 JOE,15,602036,4 EPZM,22,253304,-1 TTGT,14,80553,2 Average,19.3,210252,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.3 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $145 million in MODN's case. Luminex Corporation (NASDAQ:LMNX) is the most popular stock in this table. On the other hand TechTarget Inc (NASDAQ:TTGT) is the least popular one with only 14 bullish hedge fund positions. Model N Inc (NYSE:MODN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MODN is 65.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately MODN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MODN were disappointed as the stock returned -6.2% since the end of September (through 12/14) 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.

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

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