Is 89bio, Inc. (ETNB) A Good Stock To Buy?

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Is 89bio, Inc. (NASDAQ:ETNB) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is ETNB a good stock to buy? 89bio, Inc. (NASDAQ:ETNB) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 20. ETNB investors should pay attention to a decrease in enthusiasm from smart money lately. There were 13 hedge funds in our database with ETNB holdings at the end of March. Our calculations also showed that ETNB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nathan Fischel DAFNA Capital

Nathan Fischel of DAFNA Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding 89bio, Inc. (NASDAQ:ETNB).

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

At second quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ETNB over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, RA Capital Management, managed by Peter Kolchinsky, holds the most valuable position in 89bio, Inc. (NASDAQ:ETNB). RA Capital Management has a $92.9 million position in the stock, comprising 1.5% of its 13F portfolio. On RA Capital Management’s heels is OrbiMed Advisors, with a $69.7 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism comprise Ken Griffin’s Citadel Investment Group, Greg Martinez’s Parkman Healthcare Partners and Nathan Fischel’s DAFNA Capital Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to 89bio, Inc. (NASDAQ:ETNB), around 1.49% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, setting aside 0.71 percent of its 13F equity portfolio to ETNB.

Judging by the fact that 89bio, Inc. (NASDAQ:ETNB) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Manfred Yu’s Acuta Capital Partners cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $9.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $2.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as 89bio, Inc. (NASDAQ:ETNB) but similarly valued. We will take a look at Primis Financial Corp. (NASDAQ:FRST), Identiv, Inc. (NASDAQ:INVE), Superior Group of Companies, Inc. (NASDAQ:SGC), Farmland Partners Inc (NYSE:FPI), AVROBIO, Inc. (NASDAQ:AVRO), DURECT Corporation (NASDAQ:DRRX), and Puma Biotechnology Inc (NASDAQ:PBYI). This group of stocks’ market values match ETNB’s market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRST,9,19433,1 INVE,7,65074,0 SGC,7,6313,-2 FPI,11,6373,6 AVRO,12,79271,2 DRRX,9,38836,-1 PBYI,15,121318,-1 Average,10,48088,0.7 [/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 $48 million. That figure was $182 million in ETNB’s case. Puma Biotechnology Inc (NASDAQ:PBYI) is the most popular stock in this table. On the other hand Identiv, Inc. (NASDAQ:INVE) is the least popular one with only 7 bullish hedge fund positions. 89bio, Inc. (NASDAQ:ETNB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ETNB is 35.8. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on ETNB as the stock returned 11.1% since the end of the second quarter (through 9/27) and outperformed the market by an even larger margin.

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