Investing in the healthcare sector can be tricky, especially if you’re looking for high returns and want to invest in clinical-stage companies, which represent an above-average risk. Many retail investors do not want to dispense a significant amount of money to take a shot at the sector and that is where we come in. We have compiled a list of five healthcare companies which have stock prices under $10 and have a significant potential to the upside. In fact, the validation of their future prospects comes from professional money managers themselves, and not just any professional money managers, but only the very elite among them, whom we exclusively track. These hedge funds have taken significant positions in these companies after rigorous research and we believe you should carefully consider adding these stocks to your own portfolio.
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Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 60 percentage points, returning 118% (read the details here). Follow the smart money into only their best investment ideas all while avoiding their high fees.
In fifth place is the biopharmaceutical company Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). Even though the company’s stock price has slid by more than 36% so far this year, a total of 25 hedge funds among those that we track had an aggregate investment of $266.34 million in Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) at the end of June. The aggregate stakes represent 25.6% of the company’s outstanding shares. Peter Kolchinsky‘s RA Capital Management is the largest stockholder of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) within our database and increased its stake by 22% during the second quarter to 9.95 million shares.
Orexigen Therapeutics, Inc. (NASDAQ:OREX) occupies the fourth spot, as a total of 28 hedge funds had an aggregate investment of $145.85 million at the end of June in the biopharmaceutical company engaged in developing therapeutic drugs for the treatment of obesity. The popularity of the company rose considerably during the second quarter, as just 24 firms had investments worth $184.87 million in Orexigen Therapeutics, Inc. (NASDAQ:OREX) at the end of March. The rise in interest has come despite an almost 36% drop in stock price during the second trimester, which indicates elite investors believe a great entry point has been found and that the stock will reverse course. Each of the top three stockholders of the company were extremely bullish on it, with Robert Pohly‘s Samlyn Capital having the largest holding after hiking its stake by 93% to 6.05 million shares valued at $29.93 million.
Synergy Pharmaceuticals Inc (NASDAQ:SGYP) ranks third with a staggering increase in hedge fund backing for the company during the second quarter, as 31 funds had $180.43 million worth of investments in the company compared to 11 firms with $31.89 million in shares at the end of March. In July, Synergy announced that its lead experimental drug, plecantide, which treats constipation with no known causes, met its primary endpoint in a second late-stage study. Peak sales of the drug are expected to exceed $800 million by 2023. Synergy Pharmaceuticals Inc (NASDAQ:SGYP) is going to file a New Drug Application for the treatment with the FDA in the first quarter of 2016. Meanwhile, the company’s stock price has surged by nearly 150% so far this year. John Paulson‘s Paulson & Co is the largest shareholder of Synergy Pharmaceuticals Inc (NASDAQ:SGYP) within our database, owning some 5.78 million shares valued at $47.99 million.
In the second spot is Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), whose stock price is up by about 16% in August despite a meltdown in the stock market. The surge came on the heels of unconfirmed news that the company was engaged in merger talks with Baxalta Inc (NYSE:BXLT), which unfortunately didn’t come through, as an agreement about the price couldn’t be reached, according to rumors. However, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA)’s stock is still up by almost 17% for the year. The company’s main cancer drug Iclusig is expected to add between $130 million and $140 million to the company’s top line this year. At the end of June a total of 31 hedge funds had an aggregate investment of $401.61 million in Ariad. Sarissa Capital Management, which is managed by Alex Denner, tops our list of Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA)’s investors, as it holds about 12.85 million shares valued at $106.27 million.
At the top of the pack is Rite Aid Corporation (NYSE:RAD), as a total of 55 hedge funds had an aggregate investment of $972.76 million in the company at the end of June. The retail drugstore chain is scheduled to release its earnings on Thursday and the estimates were revised down in the previous quarter, owing to Rite Aid Corporation (NYSE:RAD)’s acquisition of pharmacy benefits manager EnvisionRX for $2 billion in June. Larry Robbins‘ Glenview Capital trimmed its stake in Rite Aid Corporation (NYSE:RAD) by 11% during the second quarter, but is still the largest stockholder of the company within our database, owning some 12.55 million shares valued at $104.78 million.
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