Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Eagle Pharmaceuticals Inc (NASDAQ:EGRX) investors should be aware of a decrease in support from the world’s most elite money managers of late. EGRX was in 20 hedge funds’ portfolios at the end of the second quarter of 2019. There were 23 hedge funds in our database with EGRX holdings at the end of the previous quarter. Our calculations also showed that EGRX isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to go over the new hedge fund action regarding Eagle Pharmaceuticals Inc (NASDAQ:EGRX).
What have hedge funds been doing with Eagle Pharmaceuticals Inc (NASDAQ:EGRX)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EGRX over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Park West Asset Management held the most valuable stake in Eagle Pharmaceuticals Inc (NASDAQ:EGRX), which was worth $72.4 million at the end of the second quarter. On the second spot was Hudson Executive Capital which amassed $45.2 million worth of shares. Moreover, GLG Partners, D E Shaw, and AQR Capital Management were also bullish on Eagle Pharmaceuticals Inc (NASDAQ:EGRX), allocating a large percentage of their portfolios to this stock.
Since Eagle Pharmaceuticals Inc (NASDAQ:EGRX) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that decided to sell off their entire stakes by the end of the second quarter. It’s worth mentioning that Stephen DuBois’s Camber Capital Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $14.7 million in stock, and Michael Castor’s Sio Capital was right behind this move, as the fund cut about $4.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Eagle Pharmaceuticals Inc (NASDAQ:EGRX) but similarly valued. These stocks are Federal Agricultural Mortgage Corp. (NYSE:AGM), TrustCo Bank Corp NY (NASDAQ:TRST), Opus Bank (NASDAQ:OPB), and SP Plus Corp (NASDAQ:SP). This group of stocks’ market valuations resemble EGRX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGM | 7 | 29670 | -2 |
| TRST | 12 | 46609 | 2 |
| OPB | 9 | 138307 | -2 |
| SP | 13 | 96170 | -1 |
| Average | 10.25 | 77689 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $158 million in EGRX’s case. SP Plus Corp (NASDAQ:SP) is the most popular stock in this table. On the other hand Federal Agricultural Mortgage Corp. (NYSE:AGM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Eagle Pharmaceuticals Inc (NASDAQ:EGRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EGRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EGRX were disappointed as the stock returned 1.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
