In this article you are going to find out whether hedge funds think LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) 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 LPTX a good stock to buy now? LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) has seen a decrease in hedge fund interest of late. LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) was in 12 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 16. Our calculations also showed that LPTX isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Kerr Neilson of Platinum Asset Management
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a peek at the latest hedge fund action regarding LEAP THERAPEUTICS, INC. (NASDAQ:LPTX).
Do Hedge Funds Think LPTX Is A Good Stock To Buy Now?
At the end of September, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LPTX over the last 21 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Perceptive Advisors, managed by Joseph Edelman, holds the biggest position in LEAP THERAPEUTICS, INC. (NASDAQ:LPTX). Perceptive Advisors has a $16.8 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Hillhouse Capital Management, led by Lei Zhang, holding a $7.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Michael Castor's Sio Capital, Doron Breen and Mori Arkin's Sphera Global Healthcare Fund and Renaissance Technologies. In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to LEAP THERAPEUTICS, INC. (NASDAQ:LPTX), around 0.57% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to LPTX.
Due to the fact that LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedge funds who were dropping their positions entirely in the third quarter. Interestingly, Schonfeld Strategic Advisors dumped the largest investment of the 750 funds monitored by Insider Monkey, comprising about $0.8 million in stock, and Nathan Fischel's DAFNA Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) but similarly valued. These stocks are First Guaranty Bancshares, Inc. (NASDAQ:FGBI), Champions Oncology, Inc. (NASDAQ:CSBR), Laredo Petroleum Inc (NYSE:LPI), Genocea Biosciences Inc (NASDAQ:GNCA), Kopin Corporation (NASDAQ:KOPN), Harvard Bioscience, Inc. (NASDAQ:HBIO), and MDC Partners Inc. (NASDAQ:MDCA). All of these stocks' market caps resemble LPTX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FGBI,1,328,-1 CSBR,2,2533,1 LPI,10,9238,-1 GNCA,10,28497,0 KOPN,2,2588,-1 HBIO,12,18011,0 MDCA,11,28165,-2 Average,6.9,12766,-0.6 [/table]
As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $34 million in LPTX's case. Harvard Bioscience, Inc. (NASDAQ:HBIO) is the most popular stock in this table. On the other hand First Guaranty Bancshares, Inc. (NASDAQ:FGBI) is the least popular one with only 1 bullish hedge fund positions. LEAP THERAPEUTICS, INC. (NASDAQ:LPTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LPTX is 73.5. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately LPTX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LPTX were disappointed as the stock returned -10.6% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
