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In this article we will check out the progression of hedge fund sentiment towards Ra Medical Systems, Inc. (NYSE:RMED) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Ra Medical Systems, Inc. (NYSE:RMED) investors should be aware of a decrease in hedge fund interest in recent months. Ra Medical Systems, Inc. (NYSE:RMED) was in 3 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. There were 4 hedge funds in our database with RMED positions at the end of the second quarter. Our calculations also showed that RMED 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
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 10 most profitable companies in the world 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. Keeping this in mind we're going to take a look at the fresh hedge fund action regarding Ra Medical Systems, Inc. (NYSE:RMED).
Hedge fund activity in Ra Medical Systems, Inc. (NYSE:RMED)
At third quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2020. On the other hand, there were a total of 3 hedge funds with a bullish position in RMED a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Ra Medical Systems, Inc. (NYSE:RMED), with a stake worth $1 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $0.3 million. Royce & Associates was 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 Royce & Associates allocated the biggest weight to Ra Medical Systems, Inc. (NYSE:RMED), around 0.0016% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.001 percent of its 13F equity portfolio to RMED.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RMED as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ra Medical Systems, Inc. (NYSE:RMED) but similarly valued. These stocks are Chicago Rivet & Machine Co. (NYSE:CVR), iFresh Inc. (NASDAQ:IFMK), Eltek Ltd. (NASDAQ:ELTK), Fuel Tech Inc. (NASDAQ:FTEK), The L.S. Starrett Company (NYSE:SCX), Harvest Capital Credit Corporation (NASDAQ:HCAP), and Rubicon Technology, Inc. (NASDAQ:RBCN). This group of stocks' market values resemble RMED's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVR,2,1314,0 IFMK,1,10,0 ELTK,1,320,0 FTEK,3,1101,1 SCX,4,3130,0 HCAP,1,254,1 RBCN,3,3657,-1 Average,2.1,1398,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.1 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in RMED's case. The L.S. Starrett Company (NYSE:SCX) is the most popular stock in this table. On the other hand iFresh Inc. (NASDAQ:IFMK) is the least popular one with only 1 bullish hedge fund positions. Ra Medical Systems, Inc. (NYSE:RMED) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RMED is 44.3. 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 positive signal but 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 28.1% in 2020 through November 23rd and beat the market again by 15.4 percentage points. Unfortunately RMED wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RMED were disappointed as the stock returned -8.4% since the end of September (through 11/23) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.