Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG)? The smart money sentiment can provide an answer to this question.
Is AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) undervalued? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund bets fell by 2 recently. Our calculations also showed that AMAG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
William Leland Edwards of Palo Alto Investors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the new hedge fund action regarding AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG).
What have hedge funds been doing with AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in AMAG a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Camber Capital Management was the largest shareholder of AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), with a stake worth $50.7 million reported as of the end of September. Trailing Camber Capital Management was Armistice Capital, which amassed a stake valued at $46.9 million. Palo Alto Investors, Renaissance Technologies, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), around 3.11% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, setting aside 2.67 percent of its 13F equity portfolio to AMAG.
Seeing as AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) has witnessed bearish sentiment from the smart money, it’s easy to see that there was a specific group of fund managers who sold off their entire stakes last quarter. It’s worth mentioning that Howard Marks’s Oaktree Capital Management dropped the biggest position of all the hedgies followed by Insider Monkey, totaling about $1.3 million in stock. Peter Muller’s fund, PDT Partners, also dumped its stock, about $1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG). We will take a look at Himax Technologies, Inc. (NASDAQ:HIMX), Roadrunner Transportation Systems Inc (NYSE:RRTS), Avedro, Inc. (NASDAQ:AVDR), and Bar Harbor Bankshares (NYSE:BHB). This group of stocks’ market values are similar to AMAG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HIMX | 2 | 10401 | -6 |
| RRTS | 3 | 356938 | 1 |
| AVDR | 7 | 116451 | -1 |
| BHB | 6 | 16384 | 3 |
| Average | 4.5 | 125044 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $188 million in AMAG’s case. Avedro, Inc. (NASDAQ:AVDR) is the most popular stock in this table. On the other hand Himax Technologies, Inc. (NASDAQ:HIMX) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AMAG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AMAG were disappointed as the stock returned -7.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
