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Were Hedge Funds Right About Berkeley Lights, Inc. (BLI)?

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Berkeley Lights, Inc. (NASDAQ:BLI).

Berkeley Lights, Inc. (NASDAQ:BLI) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds' portfolios at the end of March. Our calculations also showed that BLI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare BLI to other stocks including Fluor Corporation (NYSE:FLR), Apple Hospitality REIT Inc (NYSE:APLE), and Casella Waste Systems Inc. (NASDAQ:CWST) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Cathie Wood ARK Investment Management
Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind let's take a look at the latest hedge fund action encompassing Berkeley Lights, Inc. (NASDAQ:BLI).

Do Hedge Funds Think BLI Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in BLI a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, ARK Investment Management held the most valuable stake in Berkeley Lights, Inc. (NASDAQ:BLI), which was worth $257 million at the end of the fourth quarter. On the second spot was Cota Capital which amassed $39.6 million worth of shares. Tower House Partners, CaaS Capital, 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 Tower House Partners allocated the biggest weight to Berkeley Lights, Inc. (NASDAQ:BLI), around 14.1% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 8.7 percent of its 13F equity portfolio to BLI.

Judging by the fact that Berkeley Lights, Inc. (NASDAQ:BLI) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that elected to cut their entire stakes in the first quarter. Interestingly, Lei Zhang's Hillhouse Capital Management dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $17.9 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dropped its stock, about $9.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Berkeley Lights, Inc. (NASDAQ:BLI). These stocks are Fluor Corporation (NYSE:FLR), Apple Hospitality REIT Inc (NYSE:APLE), Casella Waste Systems Inc. (NASDAQ:CWST), Energizer Holdings, Inc. (NYSE:ENR), CNO Financial Group Inc (NYSE:CNO), Ingevity Corporation (NYSE:NGVT), and Cathay General Bancorp (NASDAQ:CATY). This group of stocks' market caps are similar to BLI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLR,17,199311,-3 APLE,17,203355,1 CWST,20,107302,1 ENR,22,237518,-4 CNO,18,380221,1 NGVT,20,280427,-4 CATY,12,130599,2 Average,18,219819,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $411 million in BLI's case. Energizer Holdings, Inc. (NYSE:ENR) is the most popular stock in this table. On the other hand Cathay General Bancorp (NASDAQ:CATY) is the least popular one with only 12 bullish hedge fund positions. Berkeley Lights, Inc. (NASDAQ:BLI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BLI is 55. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately BLI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BLI investors were disappointed as the stock returned -4.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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