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In this article we will take a look at whether hedge funds think Novan, Inc. (NASDAQ:NOVN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is NOVN a good stock to buy? Novan, Inc. (NASDAQ:NOVN) investors should be aware of an increase in hedge fund sentiment recently. Novan, Inc. (NASDAQ:NOVN) was in 4 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 5. There were 1 hedge funds in our database with NOVN holdings at the end of December. Our calculations also showed that NOVN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 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 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.
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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's take a gander at the latest hedge fund action regarding Novan, Inc. (NASDAQ:NOVN).
Do Hedge Funds Think NOVN Is A Good Stock To Buy Now?
At first quarter's end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 300% from the fourth quarter of 2020. On the other hand, there were a total of 2 hedge funds with a bullish position in NOVN 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.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Novan, Inc. (NASDAQ:NOVN). Renaissance Technologies has a $2.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Millennium Management, managed by Israel Englander, which holds a $1.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish include Ken Griffin's Citadel Investment Group, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners and . In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Novan, Inc. (NASDAQ:NOVN), around 0.0037% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0035 percent of its 13F equity portfolio to NOVN.
As one would reasonably expect, specific money managers have jumped into Novan, Inc. (NASDAQ:NOVN) headfirst. Renaissance Technologies, established the most valuable position in Novan, Inc. (NASDAQ:NOVN). Renaissance Technologies had $2.8 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Novan, Inc. (NASDAQ:NOVN) but similarly valued. We will take a look at Sharps Compliance Corp. (NASDAQ:SMED), Parke Bancorp, Inc. (NASDAQ:PKBK), Eneti Inc. (NYSE:NETI), ZK International Group Co., Ltd. (NASDAQ:ZKIN), Onconova Therapeutics, Inc. (NASDAQ:ONTX), MICT, Inc. (NASDAQ:MICT), and Checkpoint Therapeutics, Inc. (NASDAQ:CKPT). This group of stocks' market valuations match NOVN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMED,9,19326,3 PKBK,3,10303,0 NETI,2,4073,0 ZKIN,3,1032,2 ONTX,10,8984,9 MICT,3,2125,-3 CKPT,7,10847,3 Average,5.3,8099,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.3 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $5 million in NOVN's case. Onconova Therapeutics, Inc. (NASDAQ:ONTX) is the most popular stock in this table. On the other hand Eneti Inc. (NYSE:NETI) is the least popular one with only 2 bullish hedge fund positions. Novan, Inc. (NASDAQ:NOVN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NOVN is 44.5. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately NOVN wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NOVN investors were disappointed as the stock returned -5.9% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.