Hedge Funds’ Favorite Stocks That Have RSI’s Under 30

Retail investors and larger-scale investors such as hedge funds are constantly on the lookout for cheap and oversold stocks that are expected to see fresh buying coming in. Battered stocks with heavy insider buying, stocks with low price-to-earnings multiples, and stocks with relative strength indexes (RSI’s) under 30 are among the groups of battered equities poised to appreciate in the future.

This article will lay out a list of five stocks with RSI’s below 30 that are favored by the hedge funds tracked by Insider Monkey. But what does RSI mean and what does the value of 30 stand for? The relative strength index is one of several technical indicators known as momentum oscillators. The RSI is computed by using the average gains and losses of a security over a specified time period, with 14 days being the most commonly used timeframe. This indicator has a value between zero and 100, with the zero value indicating that a stock closed in the red for 14 consecutive trading sessions. Hence, as a stock’s RSI falls below the 30-level and moves closer to the zero level, technically-oriented investors tend to go on the offensive and buy the seemingly oversold security. That said, let’s have a look at the hedge fund sentiment towards five seemingly oversold stocks.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5. Fibria Celulose SA (ADR) (NYSE:FBR)

 – Hedge Funds With Long Positions (as of March 31): 13

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $60.40 Million

 – 14-Day RSI: 6.49

There were 13 asset managers followed by Insider Monkey that had equity investments in Fibria Celulose SA (ADR) (NYSE:FBR) at the end of March, up from ten recorded at the end of December. The overall value of those investments rose by 69% during the first quarter, to $60.40 million, even though the company’s American Depositary Shares (ADSs) lost 33% during the quarter, so top investors were buying on weakness, which the stock is now experiencing again. The Brazilian wood pulp producer has lost 48% of its market value since the beginning of 2016. Fibria Celulose enjoyed strong stock performance last year, as Brazil’s currency registered the largest plunge among the world’s major currencies. However, the combination of a recovering real and falling prices of wood products have put massive weight on the company’s performance this year. Just recently, Fibria Celulose’s management said it that was anticipating “very good” sales in the second quarter, as Chinese buyers were returning to the market to restock inventories after using them up to force down prices. Israel Englander’s Millennium Management added a 1.17 million-ADS position to its portfolio during the March quarter.

#4. Mirati Therapeutics Inc. (NASDAQ:MRTX)

 – Hedge Funds With Long Positions (as of March 31): 14

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $161.57 Million

 – 14-Day RSI: 5.58

The number of hedge funds in our system with long positions in Mirati Therapeutics Inc. (NASDAQ:MRTX) decreased to 14 from 15 during the first three months of 2016, while the aggregate value of those positions fell by 18% to $161.57 million. Those 14 funds amassed a whopping 39% of the company’s outstanding common stock. The clinical-stage biopharmaceutical company focused on developing targeted oncology products has seen the value of its stock plummet by 82% since the beginning of 2016. The disastrous performance was mainly attributable to a freshly-issued update on three ongoing clinical programs in patients suffering from non-small cell lung cancer (NSCLC) and other solid tumors. The developer of cancer therapies said its glesatinib showed promising results in a Phase 1b clinical trial in patients with NSCLC, but most patients enrolled in the trial experienced dose reductions or interruptions due to episodes of diarrhea. Baker Bros. Advisors, founded by Julian Baker and Felix Baker, was the owner of 3.27 million shares of Mirati Therapeutics Inc. (NASDAQ:MRTX) on March 31.

Let’s head to the second page of this article where we’ll discuss the hedge fund sentiment towards three other popular stocks with RSI’s under 30.

#3. Synergy Pharmaceuticals Inc. (NASDAQ:SGYP)

 – Hedge Funds With Long Positions (as of March 31): 21

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $73.66 Million

 – 14-Day RSI: 6.55

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) lost some favor with the hedge fund vehicles followed by Insider Monkey during the first quarter, as the number of funds invested in the company dropped to 21 from 24 quarter-over-quarter. The total value of those funds’ equity investments in the company also plunged by 49% during the quarter to $73.66 million, though this was primarily due to a drop of 51% in the value of Synergy’s shares. A possible investment in the biopharmaceutical company appears to be a binary option at the moment, as the company’s future prospects fully rely on drug candidate plecanatide for the treatment for chronic idiopathic constipation (CIC). Synergy Pharmaceutical filed its first new drug application (NDA) in January and anticipates the FDA’s decision in late January 2017. The company also plans to file its second NDA for plecanatide for the treatment of irritable bowel syndrome with constipation (IBS-C) by the end of the year. Steven Boyd’s Armistice Capital acquired a new stake of 2.20 million shares of Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) during the March quarter.

#2. Babcock & Wilcox Enterprises Inc. (NYSE:BW)

 – Hedge Funds With Long Positions (as of March 31): 26

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $315.29 Million

 – 14-Day RSI: 14.99

Babcock & Wilcox Enterprises Inc. (NYSE:BW) has received more attention from the elite segment of the hedge fund industry tracked by our team, as the number of hedge funds in our system with stakes in the company spiked to 26 from 22 during the first quarter of 2016. On the other hand, the aggregate value of those stakes fell by nearly 10% to $315.29 million, even as the stock was up by 3% in the first quarter. The shares of the power generation company have since tanked, by 31% in the past month after the company cut its 2016 earnings outlook and unveiled plans to restructure its coal-fired power generation business on reduced expectations for coal-fired electricity generation. Babcock & Wilcox Enterprises said the restructuring of its traditional power business involves the elimination of more than 200 jobs in North America, as well as other cost reduction initiatives. Mariko Gordon’s Daruma Capital Management had 2.50 million shares of Babcock & Wilcox Enterprises Inc. (NYSE:BW) in its equity portfolio at the end of March.

#1. Rite Aid Corporation (NYSE:RAD)

  – Hedge Funds With Long Positions (as of March 31): 52

  – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $960.22 Million

  – 14-Day RSI: 7.16

Rite Aid Corporation (NYSE:RAD) received some love from the money managers monitored by Insider Monkey during the January-to-March period, with the number of managers invested in the company rising to 52 from 47 quarter-over-quarter. However, the value of those managers’ equity positions in the company fell by 22% to $960.22 million, even though Rite Aid’s shares gained 5%. In late 2015, the full-service pharmacy retail healthcare company announced that it had agreed to be acquired by rival Walgreens Boots Alliance Inc. (NASDAQ:WBA) for $9.4 billion in cash. The deal would combine the second- and third-largest drugstore chains in the United States. Although the climate for U.S regulatory reviews of mergers has been tough as of late, the acquirer’s executives are confident that the $9.4 billion-proposed acquisition will go through. Rite Aid shares are currently trading significantly below Walgreens’ offer of $9 per share, reflecting investor worries that the transaction may not receive the necessary approval from regulators. Matthew Halbower’s Pentwater Capital Management owns 14.00 million shares of Rite Aid Corporation (NYSE:RAD) as of March 31.

Disclosure: None