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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Progenity, Inc. (NASDAQ:PROG) changed recently.
Is PROG a good stock to buy now? Investors who are in the know were in a pessimistic mood. The number of bullish hedge fund positions dropped by 3 recently. Progenity, Inc. (NASDAQ:PROG) was in 7 hedge funds' portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that PROG 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). There were 10 hedge funds in our database with PROG positions at the end of the second quarter.
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.
Timothy Lynch of Stonepine 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 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. With all of this in mind we're going to view the new hedge fund action encompassing Progenity, Inc. (NASDAQ:PROG).
How are hedge funds trading Progenity, Inc. (NASDAQ:PROG)?
At third quarter's end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PROG over the last 21 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Armistice Capital was the largest shareholder of Progenity, Inc. (NASDAQ:PROG), with a stake worth $3.6 million reported as of the end of September. Trailing Armistice Capital was Millennium Management, which amassed a stake valued at $1.1 million. Alyeska Investment Group, Stonepine Capital, and Driehaus 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 Stonepine Capital allocated the biggest weight to Progenity, Inc. (NASDAQ:PROG), around 0.64% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to PROG.
Since Progenity, Inc. (NASDAQ:PROG) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of funds who sold off their positions entirely by the end of the third quarter. At the top of the heap, Jonathan Auerbach's Hound Partners sold off the largest investment of all the hedgies monitored by Insider Monkey, totaling close to $2 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $0.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Progenity, Inc. (NASDAQ:PROG). We will take a look at Triple-S Management Corp.(NYSE:GTS), First Mid Bancshares, Inc. (NASDAQ:FMBH), American Public Education, Inc. (NASDAQ:APEI), Consolidated Communications Holdings Inc (NASDAQ:CNSL), ChannelAdvisor Corp (NYSE:ECOM), SP Plus Corp (NASDAQ:SP), and Enerplus Corp (NYSE:ERF). All of these stocks' market caps resemble PROG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTS,11,87709,1 FMBH,3,2962,0 APEI,12,75333,-4 CNSL,15,24192,3 ECOM,19,62827,0 SP,13,23906,-2 ERF,17,77008,1 Average,12.9,50562,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $7 million in PROG's case. ChannelAdvisor Corp (NYSE:ECOM) is the most popular stock in this table. On the other hand First Mid Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 3 bullish hedge fund positions. Progenity, Inc. (NASDAQ:PROG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PROG is 35.5. 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 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 surpassed the market again by 16 percentage points. Unfortunately PROG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PROG investors were disappointed as the stock returned -63.6% since the end of September (through 12/2) 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.