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Were Hedge Funds Right About Silk Road Medical, Inc. (SILK)?

Debasis Saha

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article (see Recession is Imminent: We Need A Travel Ban NOW) and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of December 31st, 2019. What do these smart investors think about Silk Road Medical, Inc. (NASDAQ:SILK)?

Is Silk Road Medical, Inc. (NASDAQ:SILK) a bargain? Hedge funds are buying. The number of long hedge fund bets inched up by 4 recently. Our calculations also showed that SILK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_364894" align="aligncenter" width="400"] James E. Flynn of Deerfield Management[/caption]

James Flynn Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. 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. With all of this in mind we're going to review the fresh hedge fund action regarding Silk Road Medical, Inc. (NASDAQ:SILK).

Hedge fund activity in Silk Road Medical, Inc. (NASDAQ:SILK)

Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in SILK a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is SILK A Good Stock To Buy?

More specifically, Deerfield Management was the largest shareholder of Silk Road Medical, Inc. (NASDAQ:SILK), with a stake worth $51.7 million reported as of the end of September. Trailing Deerfield Management was Alyeska Investment Group, which amassed a stake valued at $12.7 million. Parkman Healthcare Partners, Sectoral Asset Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Parkman Healthcare Partners allocated the biggest weight to Silk Road Medical, Inc. (NASDAQ:SILK), around 2.27% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 1.65 percent of its 13F equity portfolio to SILK.

With a general bullishness amongst the heavyweights, key money managers have jumped into Silk Road Medical, Inc. (NASDAQ:SILK) headfirst. Parkman Healthcare Partners, managed by Greg Martinez, initiated the largest position in Silk Road Medical, Inc. (NASDAQ:SILK). Parkman Healthcare Partners had $7.9 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom's Sectoral Asset Management also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Vishal Saluja and Pham Quang's Endurant Capital Management, Ken Griffin's Citadel Investment Group, and Paul Tudor Jones's Tudor Investment Corp.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Silk Road Medical, Inc. (NASDAQ:SILK) but similarly valued. These stocks are So-Young International Inc. (NASDAQ:SY), INMODE LTD. (NASDAQ:INMD), Enviva Partners, LP (NYSE:EVA), and Livent Corporation (NYSE:LTHM). This group of stocks' market values are similar to SILK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SY,7,61965,5 INMD,7,47683,0 EVA,5,111399,0 LTHM,16,84627,-4 Average,8.75,76419,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $89 million in SILK's case. Livent Corporation (NYSE:LTHM) 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. Silk Road Medical, Inc. (NASDAQ:SILK) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 12.9 percentage points. Hedge funds were also right about betting on SILK as the stock returned 3.7% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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