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Were Hedge Funds Right About DermTech, Inc. (DMTK)?

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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 DermTech, Inc. (NASDAQ:DMTK).

DermTech, Inc. (NASDAQ:DMTK) investors should be aware of an increase in enthusiasm from smart money recently. DermTech, Inc. (NASDAQ:DMTK) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 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 DMTK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are several indicators stock traders employ to grade stocks. Two of the most innovative indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite money managers can outpace the market by a significant amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

jim simons stocks portfolio investment
jim simons stocks portfolio investment

Jim Simons of Renaissance Technologies

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 we're going to take a peek at the key hedge fund action regarding DermTech, Inc. (NASDAQ:DMTK).

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

At the end of March, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in DMTK a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DMTK A Good Stock To Buy?
Is DMTK A Good Stock To Buy?

The largest stake in DermTech, Inc. (NASDAQ:DMTK) was held by Iszo Capital, which reported holding $92.6 million worth of stock at the end of December. It was followed by Casdin Capital with a $88.6 million position. Other investors bullish on the company included Cormorant Asset Management, Iron Triangle Partners, and Pura Vida Investments. In terms of the portfolio weights assigned to each position Iszo Capital allocated the biggest weight to DermTech, Inc. (NASDAQ:DMTK), around 43.62% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 2.64 percent of its 13F equity portfolio to DMTK.

Consequently, key money managers have been driving this bullishness. Cormorant Asset Management, managed by Bihua Chen, created the largest position in DermTech, Inc. (NASDAQ:DMTK). Cormorant Asset Management had $40.6 million invested in the company at the end of the quarter. Kevin Molloy's Iron Triangle Partners also initiated a $12.7 million position during the quarter. The other funds with brand new DMTK positions are David Zorub's Parsifal Capital Management, Renaissance Technologies, and Joseph Samuels's Islet Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as DermTech, Inc. (NASDAQ:DMTK) but similarly valued. These stocks are Meta Financial Group Inc. (NASDAQ:CASH), G-III Apparel Group, Ltd. (NASDAQ:GIII), Zymeworks Inc. (NYSE:ZYME), Star Bulk Carriers Corp. (NASDAQ:SBLK), Arco Platform Limited (NASDAQ:ARCE), Archrock, Inc. (NYSE:AROC), and Regenxbio Inc (NASDAQ:RGNX). All of these stocks' market caps are similar to DMTK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CASH,14,109318,5 GIII,14,90292,-2 ZYME,27,473839,-1 SBLK,13,692200,3 ARCE,8,49651,-7 AROC,16,46620,5 RGNX,22,208915,1 Average,16.3,238691,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $239 million. That figure was $303 million in DMTK's case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Arco Platform Limited (NASDAQ:ARCE) is the least popular one with only 8 bullish hedge fund positions. DermTech, Inc. (NASDAQ:DMTK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DMTK is 65.3. 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 positive signal but 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 beat the market again by 10.1 percentage points. Unfortunately DMTK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DMTK were disappointed as the stock returned -30.1% 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 many of these stocks already outperformed the market since 2019.

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