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In this article we will analyze whether Relay Therapeutics, Inc. (NASDAQ:RLAY) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is RLAY a good stock to buy now? The smart money was taking a bullish view. The number of bullish hedge fund positions advanced by 18 recently. Relay Therapeutics, Inc. (NASDAQ:RLAY) was in 18 hedge funds' portfolios at the end of September. Our calculations also showed that RLAY 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.
Oleg Nodelman of EcoR1 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 we're going to analyze the fresh hedge fund action surrounding Relay Therapeutics, Inc. (NASDAQ:RLAY).
Do Hedge Funds Think RLAY Is A Good Stock To Buy Now?
At third quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18 from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RLAY over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eli Casdin's Casdin Capital has the number one position in Relay Therapeutics, Inc. (NASDAQ:RLAY), worth close to $162.2 million, comprising 7.3% of its total 13F portfolio. Sitting at the No. 2 spot is Biotechnology Value Fund / BVF Inc, managed by Mark Lampert, which holds a $143.9 million position; 7.8% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions include Oleg Nodelman's EcoR1 Capital, Joseph Edelman's Perceptive Advisors and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Relay Therapeutics, Inc. (NASDAQ:RLAY), around 9.72% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, designating 7.84 percent of its 13F equity portfolio to RLAY.
Consequently, specific money managers were leading the bulls' herd. Casdin Capital, managed by Eli Casdin, created the most outsized position in Relay Therapeutics, Inc. (NASDAQ:RLAY). Casdin Capital had $162.2 million invested in the company at the end of the quarter. Mark Lampert's Biotechnology Value Fund / BVF Inc also initiated a $143.9 million position during the quarter. The following funds were also among the new RLAY investors: Oleg Nodelman's EcoR1 Capital, Joseph Edelman's Perceptive Advisors, and Richard Driehaus's Driehaus Capital.
Let's now review hedge fund activity in other stocks similar to Relay Therapeutics, Inc. (NASDAQ:RLAY). We will take a look at Penske Automotive Group, Inc. (NYSE:PAG), National General Holdings Corp (NASDAQ:NGHC), ICU Medical, Inc. (NASDAQ:ICUI), Tenable Holdings, Inc. (NASDAQ:TENB), Regal Beloit Corporation (NYSE:RBC), Builders FirstSource, Inc. (NASDAQ:BLDR), and Aaron's, Inc. (NYSE:AAN). This group of stocks' market values are similar to RLAY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAG,18,107356,-3 NGHC,25,489741,8 ICUI,31,295797,-1 TENB,30,490303,8 RBC,25,241763,3 BLDR,38,616896,6 AAN,39,387786,12 Average,29.4,375663,4.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $734 million in RLAY's case. Aaron's, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Penske Automotive Group, Inc. (NYSE:PAG) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Relay Therapeutics, Inc. (NASDAQ:RLAY) is even less popular than PAG. Our overall hedge fund sentiment score for RLAY is 10. 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. Hedge funds dodged a bullet by taking a bearish stance towards RLAY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th but managed to beat the market again by 15.8 percentage points. Unfortunately RLAY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RLAY investors were disappointed as the stock returned 2.9% since the end of the third quarter (through 12/14) 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 so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.