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Is TRACON Pharmaceuticals (TCON) A Good Stock To Buy Now?

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Abigail Fisher
·6 min read
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We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of TRACON Pharmaceuticals Inc (NASDAQ:TCON) based on that data.

Is TRACON Pharmaceuticals (TCON) a good stock to buy now? TCON shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of September. Our calculations also showed that TCON 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 TCON to other stocks including Randolph Bancorp, Inc. (NASDAQ:RNDB), Hunt Companies Finance Trust, Inc. (NYSE:HCFT), and Emclaire Financial Corp (NASDAQ:EMCF) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

MILLENNIUM MANAGEMENT
MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

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 take a glance at the key hedge fund action surrounding TRACON Pharmaceuticals Inc (NASDAQ:TCON).

How have hedgies been trading TRACON Pharmaceuticals Inc (NASDAQ:TCON)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TCON 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.

More specifically, Ikarian Capital was the largest shareholder of TRACON Pharmaceuticals Inc (NASDAQ:TCON), with a stake worth $11.2 million reported as of the end of September. Trailing Ikarian Capital was Opaleye Management, which amassed a stake valued at $10.4 million. Renaissance Technologies, 683 Capital Partners, and Millennium Management 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 Opaleye Management allocated the biggest weight to TRACON Pharmaceuticals Inc (NASDAQ:TCON), around 2.04% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, setting aside 0.81 percent of its 13F equity portfolio to TCON.

Due to the fact that TRACON Pharmaceuticals Inc (NASDAQ:TCON) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their full holdings in the third quarter. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors said goodbye to the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $0.1 million in stock. Ken Griffin's fund, Citadel Investment Group, also dumped its stock, about $0 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to TRACON Pharmaceuticals Inc (NASDAQ:TCON). We will take a look at Randolph Bancorp, Inc. (NASDAQ:RNDB), Hunt Companies Finance Trust, Inc. (NYSE:HCFT), Emclaire Financial Corp (NASDAQ:EMCF), Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), Heritage Global Inc. (NASDAQ:HGBL), Aemetis, Inc (NASDAQ:AMTX), and Kingsway Financial Services Inc. (NYSE:KFS). This group of stocks' market caps match TCON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RNDB,2,613,0 HCFT,5,1880,0 EMCF,2,491,0 STSA,8,21826,-4 HGBL,1,27,1 AMTX,2,3749,-1 KFS,2,1293,0 Average,3.1,4268,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.1 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $23 million in TCON's case. Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA) is the most popular stock in this table. On the other hand Heritage Global Inc. (NASDAQ:HGBL) is the least popular one with only 1 bullish hedge fund positions. TRACON Pharmaceuticals Inc (NASDAQ:TCON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TCON is 58.6. 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 gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on TCON as the stock returned 70.8% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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