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In this article we are going to use hedge fund sentiment as a tool and determine whether Outlook Therapeutics, Inc. (NASDAQ:OTLK) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is OTLK a good stock to buy now? Outlook Therapeutics, Inc. (NASDAQ:OTLK) investors should pay attention to an increase in activity from the world's largest hedge funds of late. Outlook Therapeutics, Inc. (NASDAQ:OTLK) was in 8 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 8. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 4 hedge funds in our database with OTLK holdings at the end of June. Our calculations also showed that OTLK 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.
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 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 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 stocks that are in our short portfolio.
David Harding of Winton Capital 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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind we're going to view the new hedge fund action regarding Outlook Therapeutics, Inc. (NASDAQ:OTLK).
Hedge fund activity in Outlook Therapeutics, Inc. (NASDAQ:OTLK)
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the second quarter of 2020. By comparison, 3 hedge funds held shares or bullish call options in OTLK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Two Sigma Advisors was the largest shareholder of Outlook Therapeutics, Inc. (NASDAQ:OTLK), with a stake worth $0.1 million reported as of the end of September. Trailing Two Sigma Advisors was Renaissance Technologies, which amassed a stake valued at $0.1 million. Cormorant Asset Management, Perceptive Advisors, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cormorant Asset Management allocated the biggest weight to Outlook Therapeutics, Inc. (NASDAQ:OTLK), around 0.0021% of its 13F portfolio. Sphera Global Healthcare Fund is also relatively very bullish on the stock, earmarking 0.0017 percent of its 13F equity portfolio to OTLK.
As one would reasonably expect, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the biggest position in Outlook Therapeutics, Inc. (NASDAQ:OTLK). Two Sigma Advisors had $0.1 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.1 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Harding's Winton Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Outlook Therapeutics, Inc. (NASDAQ:OTLK). These stocks are FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW), IEC Electronics Corp. (NYSE:IEC), Union Bankshares, Inc. (NASDAQ:UNB), Genesis Healthcare Inc (NYSE:GEN), Potbelly Corp (NASDAQ:PBPB), Oasis Petroleum Inc. (NYSE:OAS), and Amesite Inc. (NASDAQ:AMST). This group of stocks' market valuations are closest to OTLK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FFNW,4,9784,-2 IEC,2,7039,0 UNB,3,1846,-1 GEN,6,3979,-2 PBPB,7,20437,-2 OAS,10,5446,-7 AMST,1,293,1 Average,4.7,6975,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.7 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $0 million in OTLK's case. Oasis Petroleum Inc. (NYSE:OAS) is the most popular stock in this table. On the other hand Amesite Inc. (NASDAQ:AMST) is the least popular one with only 1 bullish hedge fund positions. Outlook Therapeutics, Inc. (NASDAQ:OTLK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OTLK is 77.9. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on OTLK as the stock returned 61.1% since the end of Q3 (through 12/2) 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.