Is Codexis, Inc. (CDXS) A Good Stock To Buy ?

Abigail Fisher

Sun, Oct 27, 2019, 6:13 PM

How do we determine whether Codexis, Inc. (NASDAQ:CDXS) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Codexis, Inc. (NASDAQ:CDXS) investors should be aware of an increase in activity from the world's largest hedge funds lately. Our calculations also showed that CDXS isn't among the 30 most popular stocks among hedge funds (see the video below).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the recent hedge fund action encompassing Codexis, Inc. (NASDAQ:CDXS).

How are hedge funds trading Codexis, Inc. (NASDAQ:CDXS)?

At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CDXS over the last 16 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Nantahala Capital Management was the largest shareholder of Codexis, Inc. (NASDAQ:CDXS), with a stake worth $98.8 million reported as of the end of March. Trailing Nantahala Capital Management was Casdin Capital, which amassed a stake valued at $86.5 million. Vivo Capital, Opaleye Management, and Farallon Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key hedge funds have jumped into Codexis, Inc. (NASDAQ:CDXS) headfirst. Millennium Management, managed by Israel Englander, initiated the most outsized position in Codexis, Inc. (NASDAQ:CDXS). Millennium Management had $1.8 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Codexis, Inc. (NASDAQ:CDXS) but similarly valued. These stocks are CBIZ, Inc. (NYSE:CBZ), Cortexyme, Inc. (NASDAQ:CRTX), Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), and First Bancorp (NASDAQ:FBNC). This group of stocks' market valuations resemble CDXS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBZ,14,150330,-2 CRTX,2,3311,2 AAWW,16,71856,-3 FBNC,14,87532,-2 Average,11.5,78257,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $305 million in CDXS's case. Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 2 bullish hedge fund positions. Codexis, Inc. (NASDAQ:CDXS) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CDXS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CDXS were disappointed as the stock returned -25.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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