Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
As many of its industry peers, shares of the biotech company Egalet Corp (NASDAQ:EGLT) have seen a 70% boost since the beginning of the year, which has, in turn, led to an increase in interest from smart money investors. In this way, EGLT was in 10 hedge funds’ portfolios at the end of the third quarter of 2015, versus 3 hedge funds in our database with EGLT holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Peapack-Gladstone Financial Corp (NASDAQ:PGC), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and Petmed Express Inc (NASDAQ:PETS) to gather more data points.
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At the moment there are a lot of tools shareholders can use to analyze their stock investments. A duo of the most under-the-radar tools are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outperform their index-focused peers by a healthy margin (see the details here).
Now, we’re going to go over the key action regarding Egalet Corp (NASDAQ:EGLT).
Hedge fund activity in Egalet Corp (NASDAQ:EGLT)
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 233% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Broadfin Capital, managed by Kevin Kotler, holds the most valuable position in Egalet Corp (NASDAQ:EGLT). Broadfin Capital has a $15 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Deerfield Management, managed by James E. Flynn, which holds a $6.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish comprise Behzad Aghazadeh’s venBio Select Advisor, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, and D. E. Shaw’s D E Shaw.
As industrywide interest jumped, specific money managers were breaking ground themselves. Deerfield Management assembled the most valuable position in Egalet Corp (NASDAQ:EGLT). venBio Select Advisor also made a $5.8 million investment in the stock during the quarter. The other funds with brand new EGLT positions are Rock Springs Capital Management, D E Shaw, and Anand Parekh’s Alyeska Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Egalet Corp (NASDAQ:EGLT) but similarly valued. We will take a look at Peapack-Gladstone Financial Corp (NASDAQ:PGC), Covenant Transportation Group, Inc. (NASDAQ:CVTI), Petmed Express Inc (NASDAQ:PETS), and RTI Surgical Inc. (NASDAQ:RTIX). This group of stocks’ market caps resemble EGLT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGC | 6 | 44635 | -1 |
| CVTI | 19 | 31647 | 7 |
| PETS | 9 | 41787 | -1 |
| RTIX | 16 | 44325 | 0 |
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $33 million in EGLT’s case. Covenant Transportation Group, Inc. (NASDAQ:CVTI) is the most popular stock in this table. On the other hand Peapack-Gladstone Financial Corp (NASDAQ:PGC) is the least popular one with only 6 bullish hedge fund positions. Egalet Corp (NASDAQ:EGLT) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CVTI might be a better candidate to consider a long position.