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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Oyster Point Pharma, Inc. (NASDAQ:OYST), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is OYST a good stock to buy now? Oyster Point Pharma, Inc. (NASDAQ:OYST) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that OYST 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). At the end of this article we will also compare OYST to other stocks including Forte Biosciences, Inc. (NASDAQ:FBRX), Cars.com Inc. (NYSE:CARS), and MSG Networks Inc (NYSE:MSGN) to get a better sense of its popularity.
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.
Michael Castor of Sio Capital
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. Now let's take a look at the new hedge fund action regarding Oyster Point Pharma, Inc. (NASDAQ:OYST).
Do Hedge Funds Think OYST Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in OYST over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Oyster Point Pharma, Inc. (NASDAQ:OYST), which was worth $5.9 million at the end of the third quarter. On the second spot was Millennium Management which amassed $3.4 million worth of shares. Sio Capital, Pentwater Capital Management, and Great Point Partners 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 Sio Capital allocated the biggest weight to Oyster Point Pharma, Inc. (NASDAQ:OYST), around 0.44% of its 13F portfolio. Wildcat Capital Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to OYST.
Due to the fact that Oyster Point Pharma, Inc. (NASDAQ:OYST) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers that slashed their full holdings by the end of the third quarter. It's worth mentioning that Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $0.5 million in stock. Chen Tianqiao's fund, Shanda Asset Management, also sold off its stock, about $0.3 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Oyster Point Pharma, Inc. (NASDAQ:OYST). We will take a look at Forte Biosciences, Inc. (NASDAQ:FBRX), Cars.com Inc. (NYSE:CARS), MSG Networks Inc (NYSE:MSGN), Meridian Bancorp, Inc. (NASDAQ:EBSB), Freeline Therapeutics Holdings plc (NASDAQ:FRLN), Capstead Mortgage Corporation (NYSE:CMO), and Geron Corporation (NASDAQ:GERN). This group of stocks' market valuations resemble OYST's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBRX,6,72274,4 CARS,22,133586,1 MSGN,26,189325,1 EBSB,14,52861,-2 FRLN,9,29817,9 CMO,15,60667,2 GERN,16,133881,5 Average,15.4,96059,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $20 million in OYST's case. MSG Networks Inc (NYSE:MSGN) is the most popular stock in this table. On the other hand Forte Biosciences, Inc. (NASDAQ:FBRX) is the least popular one with only 6 bullish hedge fund positions. Oyster Point Pharma, Inc. (NASDAQ:OYST) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OYST is 55. 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 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 surpassed the market again by 16.2 percentage points. Unfortunately OYST wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); OYST investors were disappointed as the stock returned -0.3% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.