We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) a bargain? Hedge funds are taking an optimistic view. The number of long hedge fund bets advanced by 8 lately. Our calculations also showed that AUPH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most investors, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation today, We look at the leaders of this club, around 850 funds. These money managers command bulk of all hedge funds’ total capital, and by watching their best picks, Insider Monkey has determined a few investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Arthur B Cohen and Joseph Healey of Healthcor Management LP
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action regarding Aurinia Pharmaceuticals Inc (NASDAQ:AUPH).
What have hedge funds been doing with Aurinia Pharmaceuticals Inc (NASDAQ:AUPH)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 62% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in AUPH over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Consonance Capital Management was the largest shareholder of Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), with a stake worth $134.2 million reported as of the end of September. Trailing Consonance Capital Management was Vivo Capital, which amassed a stake valued at $110.9 million. Healthcor Management LP, Point72 Asset Management, and OrbiMed Advisors 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 Consonance Capital Management allocated the biggest weight to Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), around 8.19% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, earmarking 8.19 percent of its 13F equity portfolio to AUPH.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, initiated the largest position in Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). Baker Bros. Advisors had $34.5 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also initiated a $14.5 million position during the quarter. The following funds were also among the new AUPH investors: Ken Greenberg and David Kim’s Ghost Tree Capital, Neil Shahrestani’s Ikarian Capital, and Kevin Kotler’s Broadfin Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) but similarly valued. These stocks are Tri Pointe Group Inc (NYSE:TPH), Evoqua Water Technologies Corp. (NYSE:AQUA), BEST Inc. (NYSE:BEST), and Flagstar Bancorp Inc (NYSE:FBC). All of these stocks’ market caps resemble AUPH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPH | 32 | 319438 | 4 |
| AQUA | 21 | 170056 | 5 |
| BEST | 10 | 23819 | -4 |
| FBC | 20 | 154140 | 5 |
| Average | 20.75 | 166863 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $641 million in AUPH’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 10 bullish hedge fund positions. Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately AUPH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AUPH were disappointed as the stock returned -26% during the same time period 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 so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
