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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Natera Inc (NASDAQ:NTRA).
Is NTRA a good stock to buy now? Natera Inc (NASDAQ:NTRA) investors should pay attention to an increase in enthusiasm from smart money in recent months. Natera Inc (NASDAQ:NTRA) was in 43 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NTRA 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 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 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 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.
Richard Driehaus of Driehaus Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's go over the latest hedge fund action encompassing Natera Inc (NASDAQ:NTRA).
Do Hedge Funds Think NTRA Is A Good Stock To Buy Now?
At the end of September, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in NTRA a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Natera Inc (NASDAQ:NTRA) was held by OrbiMed Advisors, which reported holding $152.5 million worth of stock at the end of September. It was followed by Millennium Management with a $97.3 million position. Other investors bullish on the company included Bridger Management, Point72 Asset Management, and Driehaus Capital. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Natera Inc (NASDAQ:NTRA), around 11.23% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, designating 7.6 percent of its 13F equity portfolio to NTRA.
As aggregate interest increased, some big names have jumped into Natera Inc (NASDAQ:NTRA) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Natera Inc (NASDAQ:NTRA). Balyasny Asset Management had $20.5 million invested in the company at the end of the quarter. Efrem Kamen's Pura Vida Investments also made a $13.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Guy Levy's Soleus Capital, Louis Bacon's Moore Global Investments, and Bhagwan Jay Rao's Integral Health Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Natera Inc (NASDAQ:NTRA) but similarly valued. We will take a look at Robert Half International Inc. (NYSE:RHI), Manhattan Associates, Inc. (NASDAQ:MANH), LPL Financial Holdings Inc (NASDAQ:LPLA), Huaneng Power International Inc (NYSE:HNP), Lincoln National Corporation (NYSE:LNC), Voya Financial Inc (NYSE:VOYA), and Sealed Air Corporation (NYSE:SEE). This group of stocks' market caps are closest to NTRA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RHI,29,272365,1 MANH,22,276489,7 LPLA,37,829559,-6 HNP,2,2278,0 LNC,30,410718,-4 VOYA,49,1103956,8 SEE,31,933728,3 Average,28.6,547013,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $547 million. That figure was $932 million in NTRA's case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 2 bullish hedge fund positions. Natera Inc (NASDAQ:NTRA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NTRA is 83.6. 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on NTRA as the stock returned 28.2% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.