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Is VirnetX Holding Corporation (VHC) A Good Stock To Buy?

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  • VHC

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded VirnetX Holding Corporation (NYSE:VHC) based on those filings.

VirnetX Holding Corporation (NYSE:VHC) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. VirnetX Holding Corporation (NYSE:VHC) was in 5 hedge funds' portfolios at the end of September. The all time high for this statistics is 6. There were 6 hedge funds in our database with VHC positions at the end of the second quarter. Our calculations also showed that VHC 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.

Nathaniel August - Mangrove Partners
Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

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 take a glance at the key hedge fund action encompassing VirnetX Holding Corporation (NYSE:VHC).

How are hedge funds trading VirnetX Holding Corporation (NYSE:VHC)?

At third quarter's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in VHC a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Mangrove Partners was the largest shareholder of VirnetX Holding Corporation (NYSE:VHC), with a stake worth $8.8 million reported as of the end of September. Trailing Mangrove Partners was Millennium Management, which amassed a stake valued at $0.8 million. Citadel Investment Group, Citadel Investment Group, and D E Shaw 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 Mangrove Partners allocated the biggest weight to VirnetX Holding Corporation (NYSE:VHC), around 1.12% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.003 percent of its 13F equity portfolio to VHC.

Judging by the fact that VirnetX Holding Corporation (NYSE:VHC) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that slashed their entire stakes heading into Q4. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest investment of all the hedgies monitored by Insider Monkey, worth about $1.1 million in stock. Schonfeld Strategic Advisors, also sold off its stock, about $0.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.

Let's check out hedge fund activity in other stocks similar to VirnetX Holding Corporation (NYSE:VHC). These stocks are Resources Connection, Inc. (NASDAQ:RGP), TransMedics Group, Inc. (NASDAQ:TMDX), Dime Community Bancshares, Inc. (NASDAQ:DCOM), Thermon Group Holdings, Inc. (NYSE:THR), Kamada Ltd (NASDAQ:KMDA), Valhi, Inc. (NYSE:VHI), and WiMi Hologram Cloud Inc. (NASDAQ:WIMI). This group of stocks' market caps are similar to VHC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGP,15,46723,2 TMDX,7,58282,1 DCOM,11,38220,-2 THR,14,24686,2 KMDA,6,13143,4 VHI,3,3064,-1 WIMI,3,1363,1 Average,8.4,26497,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $10 million in VHC's case. Resources Connection, Inc. (NASDAQ:RGP) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 3 bullish hedge fund positions. VirnetX Holding Corporation (NYSE:VHC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VHC is 37.3. 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 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 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately VHC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VHC investors were disappointed as the stock returned 4.4% since the end of September (through 11/27) 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.

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