Did Hedge Funds Get Mirati Therapeutics, Inc. (MRTX) Right?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX) and determine whether hedge funds had an edge regarding this stock.

Mirati Therapeutics, Inc. (NASDAQ:MRTX) has seen a decrease in hedge fund interest lately. Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 46 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 57. Our calculations also showed that MRTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Mirati Therapeutics, Inc. (NASDAQ:MRTX).

Felix Baker of Baker Bros.

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

At the end of September, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRTX over the last 25 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, holds the number one position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). Avoro Capital Advisors (venBio Select Advisor) has a $884.6 million position in the stock, comprising 13.9% of its 13F portfolio. The second largest stake is held by Perceptive Advisors, managed by Joseph Edelman, which holds a $599.3 million position; 8.7% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise Julian Baker and Felix Baker’s Baker Bros. Advisors, OrbiMed Advisors and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 13.89% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, setting aside 8.7 percent of its 13F equity portfolio to MRTX.

Judging by the fact that Mirati Therapeutics, Inc. (NASDAQ:MRTX) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Jeffrey Jay and David Kroin’s Great Point Partners dumped the largest investment of the 750 funds watched by Insider Monkey, valued at an estimated $16.2 million in stock, and Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund was right behind this move, as the fund dumped about $7.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 9 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Mirati Therapeutics, Inc. (NASDAQ:MRTX). These stocks are West Fraser Timber Co. Ltd. (NYSE:WFG), XPO Logistics Inc (NYSE:XPO), Tempur Sealy International Inc. (NYSE:TPX), Concentrix Corporation (NASDAQ:CNXC), AECOM (NYSE:ACM), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), and Algonquin Power & Utilities Corp. (NYSE:AQN). This group of stocks’ market values are similar to MRTX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $891 million. That figure was $2796 million in MRTX’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRTX is 65.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, MRTX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MRTX were disappointed as the stock returned -32.6% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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