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Were Hedge Funds Right About ContraFect Corp (CFRX)?

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In this article we will analyze whether ContraFect Corp (NASDAQ:CFRX) 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.

ContraFect Corp (NASDAQ:CFRX) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 13. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CFRX investors should be aware of an increase in support from the world's most elite money managers lately. There were 10 hedge funds in our database with CFRX holdings at the end of December. Our calculations also showed that CFRX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Louis Bacon Moore of Moore Capital

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. Now let's analyze the latest hedge fund action encompassing ContraFect Corp (NASDAQ:CFRX).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 80% from the fourth quarter of 2020. On the other hand, there were a total of 5 hedge funds with a bullish position in CFRX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is CFRX A Good Stock To Buy?
Is CFRX A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Mark Lampert's Biotechnology Value Fund / BVF Inc has the number one position in ContraFect Corp (NASDAQ:CFRX), worth close to $18.3 million, accounting for 0.7% of its total 13F portfolio. The second largest stake is held by Alyeska Investment Group, led by Anand Parekh, holding a $6 million call position; 0.1% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish include Phill Gross and Robert Atchinson's Adage Capital Management, Louis Bacon's Moore Global Investments and Ari Zweiman's 683 Capital Partners. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to ContraFect Corp (NASDAQ:CFRX), around 0.7% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, earmarking 0.69 percent of its 13F equity portfolio to CFRX.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, created the most valuable call position in ContraFect Corp (NASDAQ:CFRX). Alyeska Investment Group had $6 million invested in the company at the end of the quarter. Timothy P. Lynch's Stonepine Capital also initiated a $1.3 million position during the quarter. The other funds with brand new CFRX positions are Anand Parekh's Alyeska Investment Group, Highbridge Capital Management, and Hal Mintz's Sabby Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as ContraFect Corp (NASDAQ:CFRX) but similarly valued. These stocks are PDL Community Bancorp (NASDAQ:PDLB), Culp, Inc. (NYSE:CULP), Aquestive Therapeutics, Inc. (NASDAQ:AQST), CPS Technologies Corp. (NASDAQ:CPSH), Ur-Energy Inc. (NYSE:URG), ObsEva SA (NASDAQ:OBSV), and Genprex, Inc. (NASDAQ:GNPX). This group of stocks' market caps match CFRX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDLB,2,2497,0 CULP,9,35121,-3 AQST,5,3048,-4 CPSH,4,4960,4 URG,4,6017,0 OBSV,3,1554,-1 GNPX,5,2388,4 Average,4.6,7941,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.6 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $34 million in CFRX's case. Culp, Inc. (NYSE:CULP) is the most popular stock in this table. On the other hand PDL Community Bancorp (NASDAQ:PDLB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks ContraFect Corp (NASDAQ:CFRX) is more popular among hedge funds. Our overall hedge fund sentiment score for CFRX 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 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 still beat the market by 10.1 percentage points. Unfortunately CFRX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CFRX were disappointed as the stock returned -17.7% since the end of the first quarter (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 since 2019.

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