Hedge Funds’ Bullish Moves on Aquinox Pharmaceuticals Inc. (AQXP), Herbalife Ltd. (HLF), and Childrens Place Inc. (PLCE)

Most equity investments made by hedge funds are based on strong reasoning and comprehensive analysis, so these investment vehicles do not make blind bets without laying out the reasoning behind each move. Truth be told, I am still impressed by Jeffrey Ubben’s decision to invest in Adobe Systems Incorporated (NASDAQ:ADBE) at the end of 2011. The billionaire investor made a well-thought-out investment and many successful money managers tend to share similar investment ideas and strategies, so individual investors should constantly examine hedge funds’ investment ideas and quarterly letters to investors (if one has the ability to gain access to them; we share as many of them as we can here at Insider Monkey). It is true that their ideas do not work out on some occasions, for various reasons, but one can complement his or her knowledge about a company by taking a glimpse into the minds of the world’s most successful money managers. Having this in mind, the following article will focus on four new filings from billionaire Dmitry Balyasny and other successful hedge fund managers tracked by Insider Monkey.

An everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies as hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. At Insider Monkey, we follow the activity of several hundred of the best-performing hedge funds as part of our strategy. We analyze their 13F filings and use the data to see what stocks they are collectively bullish on. Through extensive research we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).

As revealed by a Form 4 filing, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, has acquired 140,786 shares of Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP) since last Friday, at prices that ranged from $10.49 per share to $11.25 per share. The healthcare-focused hedge fund firm currently holds 7.28 million shares of the company, which account for 42.30% of its outstanding shares. The clinical stage pharmaceutical company focuses on developing therapeutics for inflammation and immune-oncology diseases, with a primary focus on anti-inflammatory products. The company’s lead product candidate is AQX-1125, which accelerates a natural mechanism that has evolved to maintain homeostasis of the immune system and hinder immune cell activation and migration to sites of inflammation. Earlier this month, Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP) released an update regarding the development of its lead product candidate for the treatment of patients with bladder pain syndrome/interstitial cystitis (BPS/IC), suggesting that the company is on track to complete all the tasks required to support its planned Phase 3 protocol submission to the FDA in the second quarter of 2016. The shares of the company have lost slightly over 1% over the past year and have lost 28% over the past three months, so the healthcare-focused investment firm might have found the stock quite attractive in recent weeks. A total of 13 hedge funds from our system were invested in the pharmaceutical company at the end of the third quarter, amassing 63.20% of its shares, making it one of the stocks with the highest concentration of ownership among the investors that we track. Peter Kolchinsky’s RA Capital Management acquired a 1.53 million-share stake in Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP) during the third quarter.

Let’s head to the next pages of this article, where we discuss the remaining three filings submitted with the SEC.

According to a Schedule 13G, Indus Capital Partners LLC, founded by David Kowitz and Sheldon Kasowitz, currently owns 7.32 million shares of Herbalife Ltd. (NYSE:HLF), which make up 7.9% of the company’s outstanding common stock. The investment firm owned 2.21 million shares of common stock and call options underlying 1.68 million shares of Herbalife at the end of September. The nutrition company that markets weight management, targeted nutrition, energy, sports and fitness, and outdoors nutrition products has seen its shares advance by 48% over the past year. However, the stock has embarked on a steady downtrend since the beginning of 2016, which has pushed the company’s price-to-earnings multiples significantly lower. The stock trades at a forward P/E ratio of 9.61, which is well below the average of 15.48 for the S&P 500 Index. The question many investors might ask is whether the company deserves a higher multiple, so let’s take a brief look at Herbalife’s recent financial performance.

Herbalife reported net sales of $3.37 billion for the first nine months of 2015, down by $454.4 million or 11.9% year-over-year. The strong U.S dollar and a decline in sales volume stand behind the decline in the company’s top-line results. Meanwhile, the company’s net income totaled $254.6 million or $2.99 per diluted share, which was up by 24% year-over-year. So does Herbalife Ltd. (NYSE:HLF) deserve a higher valuation? The soon-to-be released earnings report for the fourth quarter of 2015 might provide a clearer answer to the preceding question. 32 hedge funds from our system had stakes in the company at the end of the September quarter, accumulating 33.10% of its shares. Billionaire Carl Icahn of Icahn Capital LP holds a 17.00 million-share position in Herbalife Ltd. (NYSE:HLF) as of the end of September.

In a freshly-amended 13D filing, Bulldog Investors LLC, founded by Phillip Goldstein, Andrew Dakos, and Steven Samuels, reported owning 3.94 million shares of Hill International Inc. (NYSE:HIL), which constitute 7.64% of the company’s shares. It is important to note that the investment firm did not sell or purchase any shares of Hill since the fund filed its previous 13D on the company in December. However, the hedge fund firm revealed in the latest filing that is sent a letter to the company’s Board of Directors, expressing its discontent with the actions of the company’s General Counsel, Bill Dengler. Long story short, Bulldog Investors intends to nominate directors for the company’s 2016 annual meeting, but the General Counsel has refused to assist the investment firm through the process of nominating directors, saying that “it is your burden and responsibility to comply with the advance notice and other requirements of Hill’s bylaws. Neither I nor anyone else at Hill has any duty, fiduciary or otherwise, to advise you through the process”. However, it appears that Hill International Inc. (NYSE:HIL) has a duty to conduct a fair corporate election, and “those in charge of the election machinery of a corporation must be held to the highest standards in providing for and conducting corporate elections”.

The shares of the professional services firm have lost 18% over the past one-year period, so the company might need to be shaken up a bit so as to inject new dynamism. It should be noted that the company has a forward P/E multiple of 8.24, so the stock might represent a real bargain at the moment, if operational efficiency can be improved. Charles Paquelet’s Skylands Capital owns 923,316 shares of Hill International Inc. (NYSE:HIL) as of the end of the third quarter.

According to a Schedule 13G, Balyasny Asset Management owns 999,915 shares of Childrens Place Inc. (NASDAQ:PLCE), which represent 5.01% of the company’s outstanding shares. This compares with the 347,048-share stake revealed through the fund’s 13F filing for the September quarter. The largest pure-play children’s specialty apparel retailer in North America has seen its shares advance by 7% over the past year, and there does not seem to be too much upside if considering the company’s P/E multiples. The company’s comparable retail sales dropped by 3.0% year-over-year in the third quarter of 2015, mainly due to unseasonably warm weather. However, Childrens Place anticipates delivering comparable store sales growth in the range of 6% to 7% for the fourth quarter, as its comparable store sales were 7.3% higher through the first nine weeks of the fourth quarter. The company reported total sales of $1.23 billion for the first three quarters of 2015, down from $1.28 billion reported a year ago. However, with the strong start to the fourth quarter, it looks like the company will be able to register year-over-year top-line growth for 2015. Returning back to the company’s P/E multiples, the stock trades at a forward P/E ratio of 16.48, which is slightly above the ratio for the S&P 500 benchmark. The number of hedgies from our system with stakes in the company declined to 11 from 19 during the September quarter. Royce & Associates, founded by Chuck Royce, reported owning 2.05 million shares of Childrens Place Inc. (NASDAQ:PLCE) through its 13F for the third quarter.

Disclosure: None