Is CDMO Stock A Buy or Sell?

Abigail Fisher
·6 min read

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31st, so let’s proceed with the discussion of the hedge fund sentiment on Avid Bioservices, Inc. (NASDAQ:CDMO).

Is CDMO stock a buy? Avid Bioservices, Inc. (NASDAQ:CDMO) was in 25 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CDMO shareholders have witnessed an increase in hedge fund interest recently. There were 16 hedge funds in our database with CDMO holdings at the end of September. Our calculations also showed that CDMO isn't among the 30 most popular stocks among hedge funds (click for Q4 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 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 124 percentage points since March 2017 (see the details here).

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny 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 we're going to check out the latest hedge fund action encompassing Avid Bioservices, Inc. (NASDAQ:CDMO).

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

At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CDMO over the last 22 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Iszo Capital, managed by Brian Sheehy, holds the biggest position in Avid Bioservices, Inc. (NASDAQ:CDMO). Iszo Capital has a $27.4 million position in the stock, comprising 28.7% of its 13F portfolio. Coming in second is Touk Sinantha of AltraVue Capital, with a $21.9 million position; 10.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism encompass George McCabe's Portolan Capital Management, Greg Martinez's Parkman Healthcare Partners and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Iszo Capital allocated the biggest weight to Avid Bioservices, Inc. (NASDAQ:CDMO), around 28.7% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, setting aside 10.1 percent of its 13F equity portfolio to CDMO.

Consequently, key money managers were breaking ground themselves. Iszo Capital, managed by Brian Sheehy, initiated the biggest position in Avid Bioservices, Inc. (NASDAQ:CDMO). Iszo Capital had $27.4 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $4.5 million position during the quarter. The other funds with brand new CDMO positions are Richard Schimel and Lawrence Sapanski's Cinctive Capital Management, Dmitry Balyasny's Balyasny Asset Management, and Steve Cohen's Point72 Asset Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Avid Bioservices, Inc. (NASDAQ:CDMO) but similarly valued. We will take a look at ARMOUR Residential REIT, Inc. (NYSE:ARR), Aspira Women's Health Inc. (NASDAQ:AWH), Argan, Inc. (NYSE:AGX), Allegiance Bancshares, Inc. (NASDAQ:ABTX), Enerplus Corp (NYSE:ERF), CleanSpark, Inc. (NASDAQ:CLSK), and Horizon Bancorp, Inc. (NASDAQ:HBNC). This group of stocks' market valuations match CDMO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARR,13,23467,2 AWH,6,6732,2 AGX,14,54217,1 ABTX,5,5800,1 ERF,17,94545,0 CLSK,5,7711,5 HBNC,10,16607,-2 Average,10,29868,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $103 million in CDMO's case. Enerplus Corp (NYSE:ERF) is the most popular stock in this table. On the other hand Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Avid Bioservices, Inc. (NASDAQ:CDMO) is more popular among hedge funds. Our overall hedge fund sentiment score for CDMO is 90. 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 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 returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on CDMO as the stock returned 64.8% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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