Was The Smart Money Right About Crowding Into EXACT Sciences Corporation (EXAS)?

Asma UL Husna
·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about EXACT Sciences Corporation (NASDAQ:EXAS).

EXACT Sciences Corporation (NASDAQ:EXAS) was in 43 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EXAS has seen an increase in hedge fund sentiment lately. There were 34 hedge funds in our database with EXAS positions at the end of the first quarter. Our calculations also showed that EXAS isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to go over the fresh hedge fund action regarding EXACT Sciences Corporation (NASDAQ:EXAS).

How are hedge funds trading EXACT Sciences Corporation (NASDAQ:EXAS)?

At Q2's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in EXAS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Viking Global held the most valuable stake in EXACT Sciences Corporation (NASDAQ:EXAS), which was worth $189.8 million at the end of the third quarter. On the second spot was Zevenbergen Capital Investments which amassed $172.6 million worth of shares. Baker Bros. Advisors, Eminence Capital, and Citadel Investment Group 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 Zevenbergen Capital Investments allocated the biggest weight to EXACT Sciences Corporation (NASDAQ:EXAS), around 4.12% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, earmarking 3.96 percent of its 13F equity portfolio to EXAS.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in EXACT Sciences Corporation (NASDAQ:EXAS). Point72 Asset Management had $17.4 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also initiated a $15.3 million position during the quarter. The following funds were also among the new EXAS investors: Christopher James's Partner Fund Management, Brian Ashford-Russell and Tim Woolley's Polar Capital, and Donald Sussman's Paloma Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as EXACT Sciences Corporation (NASDAQ:EXAS) but similarly valued. We will take a look at Pinterest, Inc. (NYSE:PINS), Avangrid, Inc. (NYSE:AGR), Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks' market caps are similar to EXAS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PINS,53,1067483,15 AGR,18,132976,0 BURL,38,1475273,-2 SYF,46,1563925,9 FMC,42,548601,3 GLPG,13,151392,-2 MLM,51,1593527,7 Average,37.3,933311,4.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $933 million. That figure was $993 million in EXAS's case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. EXACT Sciences Corporation (NASDAQ:EXAS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EXAS is 77.5. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on EXAS as the stock returned 26.2% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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