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Were These Hedge Funds Right About Dumping SpringWorks Therapeutics, Inc. (SWTX)?

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  • SWTX
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In this article you are going to find out whether hedge funds think SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) investors should be aware of a decrease in support from the world's most elite money managers lately. SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) was in 18 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 22. There were 22 hedge funds in our database with SWTX positions at the end of the first quarter. Our calculations also showed that SWTX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are a multitude of formulas stock traders have at their disposal to size up publicly traded companies. Some of the most under-the-radar formulas are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the best fund managers can outpace the S&P 500 by a significant amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Richard Driehaus of Driehaus Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 take a gander at the new hedge fund action surrounding SpringWorks Therapeutics, Inc. (NASDAQ:SWTX).

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

At second quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the first quarter of 2020. On the other hand, there were a total of 15 hedge funds with a bullish position in SWTX a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is SWTX A Good Stock To Buy?
Is SWTX A Good Stock To Buy?

The largest stake in SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) was held by OrbiMed Advisors, which reported holding $498.1 million worth of stock at the end of June. It was followed by Perceptive Advisors with a $399.7 million position. Other investors bullish on the company included Driehaus Capital, Consonance Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), around 11.89% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, designating 5.19 percent of its 13F equity portfolio to SWTX.

Judging by the fact that SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of funds that elected to cut their entire stakes in the second quarter. Interestingly, Frank Fu's CaaS Capital dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling an estimated $16.5 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $5.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to SpringWorks Therapeutics, Inc. (NASDAQ:SWTX). We will take a look at LGI Homes Inc (NASDAQ:LGIH), Viavi Solutions Inc (NASDAQ:VIAV), Cerence Inc. (NASDAQ:CRNC), Parsons Corporation (NYSE:PSN), Companhia Energetica Minas Gerais (NYSE:CIG), Millicom International Cellular S.A. (NASDAQ:TIGO), and Artisan Partners Asset Management Inc (NYSE:APAM). All of these stocks' market caps are similar to SWTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LGIH,17,55924,1 VIAV,24,233675,-4 CRNC,21,185310,1 PSN,9,18808,0 CIG,15,108359,2 TIGO,7,78275,2 APAM,19,182843,-2 Average,16,123313,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $1338 million in SWTX's case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 7 bullish hedge fund positions. SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWTX is 57.9. 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 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately SWTX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SWTX were disappointed as the stock returned -9.4% since the end of June (through 11/5) 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.