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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Neuronetics, Inc. (NASDAQ:STIM)? The smart money sentiment can provide an answer to this question.
Is STIM a good stock to buy now? Neuronetics, Inc. (NASDAQ:STIM) has experienced an increase in support from the world's most elite money managers of late. Neuronetics, Inc. (NASDAQ:STIM) was in 14 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that STIM 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.
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 was 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'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.
Richard Driehaus of Driehaus 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. With all of this in mind let's check out the new hedge fund action encompassing Neuronetics, Inc. (NASDAQ:STIM).
Do Hedge Funds Think STIM Is A Good Stock To Buy Now?
At third quarter's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 75% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards STIM 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.
The largest stake in Neuronetics, Inc. (NASDAQ:STIM) was held by Deerfield Management, which reported holding $7.7 million worth of stock at the end of September. It was followed by Granite Point Capital with a $6.3 million position. Other investors bullish on the company included Archon Capital Management, DAFNA Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to Neuronetics, Inc. (NASDAQ:STIM), around 1.04% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, earmarking 0.78 percent of its 13F equity portfolio to STIM.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Granite Point Capital, managed by Warren Lammert, assembled the biggest position in Neuronetics, Inc. (NASDAQ:STIM). Granite Point Capital had $6.3 million invested in the company at the end of the quarter. Constantinos J. Christofilis's Archon Capital Management also made a $5.2 million investment in the stock during the quarter. The other funds with new positions in the stock are J. Carlo Cannell's Cannell Capital, Chuck Royce's Royce & Associates, and Richard Driehaus's Driehaus Capital.
Let's check out hedge fund activity in other stocks similar to Neuronetics, Inc. (NASDAQ:STIM). These stocks are Milestone Scientific, Inc. (NYSE:MLSS), Outlook Therapeutics, Inc. (NASDAQ:OTLK), FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW), IEC Electronics Corp. (NYSE:IEC), Union Bankshares, Inc. (NASDAQ:UNB), Genesis Healthcare Inc (NYSE:GEN), and Potbelly Corp (NASDAQ:PBPB). This group of stocks' market caps resemble STIM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLSS,1,25,0 OTLK,8,368,4 FFNW,4,9784,-2 IEC,2,7039,0 UNB,3,1846,-1 GEN,6,3979,-2 PBPB,7,20437,-2 Average,4.4,6211,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.4 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $27 million in STIM's case. Outlook Therapeutics, Inc. (NASDAQ:OTLK) is the most popular stock in this table. On the other hand Milestone Scientific, Inc. (NYSE:MLSS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Neuronetics, Inc. (NASDAQ:STIM) is more popular among hedge funds. Our overall hedge fund sentiment score for STIM is 90. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on STIM as the stock returned 82.3% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.