Is GATO Stock A Buy Here?

·6 min read

In this article you are going to find out whether hedge funds think Gatos Silver, Inc. (NYSE:GATO) 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 GATO stock a buy? Hedge fund interest in Gatos Silver, Inc. (NYSE:GATO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GATO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare GATO to other stocks including Solid Biosciences Inc. (NASDAQ:SLDB), Gilat Satellite Networks Ltd. (NASDAQ:GILT), and Precision BioSciences, Inc. (NASDAQ:DTIL) to get a better sense of its popularity.

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 115 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.


Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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 fresh hedge fund action surrounding Gatos Silver, Inc. (NYSE:GATO).

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

At Q1's end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in GATO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Sprott Asset Management, managed by Eric Sprott, holds the number one position in Gatos Silver, Inc. (NYSE:GATO). Sprott Asset Management has a $16.9 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $2.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Paul Tudor Jones's Tudor Investment Corp, John Overdeck and David Siegel's Two Sigma Advisors and . In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Gatos Silver, Inc. (NYSE:GATO), around 1.01% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.0038 percent of its 13F equity portfolio to GATO.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Tudor Investment Corp).

Let's also examine hedge fund activity in other stocks similar to Gatos Silver, Inc. (NYSE:GATO). We will take a look at Solid Biosciences Inc. (NASDAQ:SLDB), Gilat Satellite Networks Ltd. (NASDAQ:GILT), Precision BioSciences, Inc. (NASDAQ:DTIL), Relmada Therapeutics, Inc. (NASDAQ:RLMD), AnaptysBio, Inc. (NASDAQ:ANAB), RADA Electronic Industries Ltd. (NASDAQ:RADA), and Luxfer Holdings PLC (NYSE:LXFR). This group of stocks' market valuations resemble GATO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLDB,24,257972,9 GILT,8,30252,3 DTIL,13,26260,2 RLMD,10,87095,0 ANAB,18,334096,-8 RADA,12,47111,1 LXFR,11,114521,1 Average,13.7,128187,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $128 million. That figure was $20 million in GATO's case. Solid Biosciences Inc. (NASDAQ:SLDB) is the most popular stock in this table. On the other hand Gilat Satellite Networks Ltd. (NASDAQ:GILT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Gatos Silver, Inc. (NYSE:GATO) is even less popular than GILT. Our overall hedge fund sentiment score for GATO is 35. 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. Hedge funds clearly dropped the ball on GATO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on GATO as the stock returned 81.7% since Q1 (through June 11th) and outperformed the market by an even larger margin.

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

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