Hedge Funds Have Never Been This Bullish On Deciphera Pharmaceuticals, Inc. (DCPH)

Debasis Saha

Sat, Mar 28, 2020, 7:10 PM 6 min read

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. Keeping this in mind, let's take a look at whether Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) worth your attention right now? The smart money is taking a bullish view. The number of long hedge fund bets went up by 2 lately. Our calculations also showed that DCPH 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).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_341400" align="aligncenter" width="400"]

Samuel Isaly of OrbiMed Advisors[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let's take a look at the fresh hedge fund action encompassing Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH).

What have hedge funds been doing with Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH)?

At Q4's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the third quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in DCPH a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

The largest stake in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) was held by Redmile Group, which reported holding $293.1 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $94.2 million position. Other investors bullish on the company included Farallon Capital, Avoro Capital Advisors (venBio Select Advisor), and Polar Capital. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), around 7.01% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, dishing out 2.74 percent of its 13F equity portfolio to DCPH.

As aggregate interest increased, specific money managers were leading the bulls' herd. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, initiated the largest position in Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). Avoro Capital Advisors (venBio Select Advisor) had $31.1 million invested in the company at the end of the quarter. Christiana Goh Bardon's Burrage Capital Management also made a $3.7 million investment in the stock during the quarter. The other funds with brand new DCPH positions are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Michael Rockefeller and Karl Kroeker's Woodline Partners, and Cliff Asness's AQR Capital Management.

Let's check out hedge fund activity in other stocks similar to Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH). These stocks are Kennedy-Wilson Holdings Inc (NYSE:KW), Allogene Therapeutics, Inc. (NASDAQ:ALLO), CONMED Corporation (NASDAQ:CNMD), and Paramount Group Inc (NYSE:PGRE). This group of stocks' market valuations are similar to DCPH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KW,17,508765,-2 ALLO,12,114946,6 CNMD,31,270901,7 PGRE,20,362031,-2 Average,20,314161,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $699 million in DCPH's case. CONMED Corporation (NASDAQ:CNMD) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 12 bullish hedge fund positions. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately DCPH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DCPH were disappointed as the stock returned -33.6% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.