Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Vericel Corp (NASDAQ:VCEL) changed recently.
Vericel Corp (NASDAQ:VCEL) investors should be aware of a decrease in enthusiasm from smart money in recent months. Our calculations also showed that VCEL isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to take a glance at the recent hedge fund action surrounding Vericel Corp (NASDAQ:VCEL).
How have hedgies been trading Vericel Corp (NASDAQ:VCEL)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VCEL over the last 14 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Consonance Capital Management held the most valuable stake in Vericel Corp (NASDAQ:VCEL), which was worth $73.4 million at the end of the fourth quarter. On the second spot was Deerfield Management which amassed $64.8 million worth of shares. Moreover, Driehaus Capital, Archon Capital Management, and AQR Capital Management were also bullish on Vericel Corp (NASDAQ:VCEL), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Vericel Corp (NASDAQ:VCEL) has experienced declining sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of funds who sold off their positions entirely heading into Q3. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $7.8 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dropped about $4.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Vericel Corp (NASDAQ:VCEL). These stocks are Golar LNG Partners LP (NASDAQ:GMLP), Unitil Corporation (NYSE:UTL), Radius Health Inc (NASDAQ:RDUS), and Regis Corporation (NYSE:RGS). This group of stocks' market valuations resemble VCEL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GMLP,4,26974,-2 UTL,8,95849,-2 RDUS,18,260771,-6 RGS,12,243782,-3 Average,10.5,156844,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $214 million in VCEL's case. Radius Health Inc (NASDAQ:RDUS) is the most popular stock in this table. On the other hand Golar LNG Partners LP (NASDAQ:GMLP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Vericel Corp (NASDAQ:VCEL) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately VCEL wasn't nearly as popular as these 15 stock and hedge funds that were betting on VCEL were disappointed as the stock returned -3.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.