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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is InMode Ltd. (NASDAQ:INMD), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Hedge fund interest in InMode Ltd. (NASDAQ:INMD) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare INMD to other stocks including Enviva Partners, LP (NYSE:EVA), Livent Corporation (NYSE:LTHM), and Core-Mark Holding Company, Inc. (NASDAQ:CORE) to get a better sense of its popularity.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the fresh hedge fund action regarding INMODE LTD. (NASDAQ:INMD).
How have hedgies been trading INMODE LTD. (NASDAQ:INMD)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in INMD 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.
According to Insider Monkey's hedge fund database, Miura Global Management, managed by Pasco Alfaro / Richard Tumure, holds the biggest position in InMode Ltd. (NASDAQ:INMD). Miura Global Management has a $36.3 million position in the stock, comprising 6.2% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $4.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish encompass Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Mark Coe's Intrinsic Edge Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Miura Global Management allocated the biggest weight to InMode Ltd. (NASDAQ:INMD), around 6.23% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to INMD.
Judging by the fact that InMode Ltd. (NASDAQ:INMD) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Michael Castor's Sio Capital dropped the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $5.8 million in stock, and Josh Goldberg's G2 Investment Partners Management was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to InMode Ltd. (NASDAQ:INMD). These stocks are Enviva Partners, LP (NYSE:EVA), Livent Corporation (NYSE:LTHM), Core-Mark Holding Company, Inc. (NASDAQ:CORE), and Supernus Pharmaceuticals Inc (NASDAQ:SUPN). This group of stocks' market caps are similar to INMD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVA,5,111399,0 LTHM,16,84627,-4 CORE,16,24343,-3 SUPN,20,130238,2 Average,14.25,87652,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $48 million in INMD's case. Supernus Pharmaceuticals Inc (NASDAQ:SUPN) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 5 bullish hedge fund positions. InMode Ltd. (NASDAQ:INMD) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately INMD wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INMD investors were disappointed as the stock returned -38.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.