(Insider Monkey) – How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Novavax, Inc. (NASDAQ:NVAX) and determine whether hedge funds had an edge regarding this stock.
Novavax, Inc. (NASDAQ:NVAX) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. NVAX investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 4 hedge funds in our database with NVAX positions at the end of the first quarter. Our calculations also showed that NVAX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most traders, hedge funds are viewed as worthless, old investment tools of the past. While there are over 8000 funds in operation today, We hone in on the masters of this group, around 850 funds. It is estimated that this group of investors shepherd the majority of the smart money’s total capital, and by keeping an eye on their top stock picks, Insider Monkey has determined various investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Novavax, Inc. (NASDAQ:NVAX).
How are hedge funds trading Novavax, Inc. (NASDAQ:NVAX)?
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 350% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in NVAX a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, RA Capital Management held the most valuable stake in Novavax, Inc. (NASDAQ:NVAX), which was worth $396.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $82.9 million worth of shares. Citadel Investment Group, Rock Springs Capital Management, and Perceptive Advisors 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 RA Capital Management allocated the biggest weight to Novavax, Inc. (NASDAQ:NVAX), around 7.73% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, earmarking 1.41 percent of its 13F equity portfolio to NVAX.
Now, some big names were breaking ground themselves. RA Capital Management, managed by Peter Kolchinsky, established the most outsized position in Novavax, Inc. (NASDAQ:NVAX). RA Capital Management had $396.6 million invested in the company at the end of the quarter. Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management also initiated a $47.6 million position during the quarter. The other funds with new positions in the stock are Joseph Edelman’s Perceptive Advisors, Lei Zhang’s Hillhouse Capital Management, and Julian Baker and Felix Baker’s Baker Bros. Advisors.
Let’s now review hedge fund activity in other stocks similar to Novavax, Inc. (NASDAQ:NVAX). We will take a look at Oshkosh Corporation (NYSE:OSK), Sasol Limited (NYSE:SSL), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), The Wendy’s Company (NASDAQ:WEN), Marathon Oil Corporation (NYSE:MRO), Jabil Inc. (NYSE:JBL), and Woodward Inc (NASDAQ:WWD). All of these stocks’ market caps resemble NVAX’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSK,27,206936,5 SSL,10,35736,1 AVAL,9,12468,4 WEN,32,1106601,-3 MRO,26,313727,2 JBL,31,375953,11 WWD,21,384120,-3 Average,22.3,347934,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $734 million in NVAX’s case. The Wendy’s Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 9 bullish hedge fund positions. Novavax, Inc. (NASDAQ:NVAX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NVAX is 52.1. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on NVAX as the stock returned 30% in the third quarter and outperformed the market by an even larger margin.