Is BLUE Stock A Buy or Sell?

Debasis Saha
·5 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards bluebird bio Inc (NASDAQ:BLUE).

Is BLUE stock a buy? Prominent investors were becoming less confident. The number of long hedge fund positions retreated by 7 recently. bluebird bio Inc (NASDAQ:BLUE) was in 28 hedge funds' portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that BLUE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 35 hedge funds in our database with BLUE holdings at the end of September.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Now let's take a look at the recent hedge fund action encompassing bluebird bio Inc (NASDAQ:BLUE).

Do Hedge Funds Think BLUE Is A Good Stock To Buy Now?

At Q4's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BLUE over the last 22 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is BLUE A Good Stock To Buy?
Is BLUE A Good Stock To Buy?

More specifically, Casdin Capital was the largest shareholder of bluebird bio Inc (NASDAQ:BLUE), with a stake worth $39.6 million reported as of the end of December. Trailing Casdin Capital was Armistice Capital, which amassed a stake valued at $38 million. Camber Capital Management, Renaissance Technologies, and Platinum Asset 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 Armistice Capital allocated the biggest weight to bluebird bio Inc (NASDAQ:BLUE), around 1.7% of its 13F portfolio. Birchview Capital is also relatively very bullish on the stock, designating 1.55 percent of its 13F equity portfolio to BLUE.

Because bluebird bio Inc (NASDAQ:BLUE) has witnessed bearish sentiment from the smart money, it's safe to say that there was a specific group of hedgies that slashed their positions entirely heading into Q1. Intriguingly, Nathaniel August's Mangrove Partners dropped the biggest investment of the 750 funds followed by Insider Monkey, totaling close to $15.3 million in stock. Henrik Rhenman's fund, Rhenman & Partners Asset Management, also dropped its stock, about $5.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 7 funds heading into Q1.

Let's now take a look at hedge fund activity in other stocks similar to bluebird bio Inc (NASDAQ:BLUE). We will take a look at Federated Hermes, Inc. (NYSE:FHI), Fabrinet (NYSE:FN), Sunoco LP (NYSE:SUN), Box, Inc. (NYSE:BOX), Patterson Companies, Inc. (NASDAQ:PDCO), Blackbaud, Inc. (NASDAQ:BLKB), and GrafTech International Ltd. (NYSE:EAF). All of these stocks' market caps are closest to BLUE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FHI,33,187644,4 FN,13,82347,-4 SUN,3,6412,-3 BOX,31,603754,-10 PDCO,18,91736,0 BLKB,19,89302,-2 EAF,32,231949,6 Average,21.3,184735,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $245 million in BLUE's case. Federated Hermes, Inc. (NYSE:FHI) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 3 bullish hedge fund positions. bluebird bio Inc (NASDAQ:BLUE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BLUE is 61.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately BLUE wasn't nearly as popular as these 30 stocks and hedge funds that were betting on BLUE were disappointed as the stock returned -35.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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