How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Protara Therapeutics, Inc. (NASDAQ:TARA) and determine whether hedge funds had an edge regarding this stock.
Is Protara Therapeutics, Inc. (NASDAQ:TARA) a great stock to buy now? Investors who are in the know were taking an optimistic view. The number of bullish hedge fund bets moved up by 4 in recent months. Our calculations also showed that TARA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are perceived as slow, outdated investment tools of years past. While there are greater than 8000 funds trading at the moment, Our experts hone in on the masters of this group, about 850 funds. These investment experts direct most of the smart money’s total capital, and by keeping an eye on their inimitable investments, Insider Monkey has discovered a number of investment strategies that have historically outstripped 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 a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
James E. Flynn of Deerfield Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Protara Therapeutics, Inc. (NASDAQ:TARA).
How are hedge funds trading Protara Therapeutics, Inc. (NASDAQ:TARA)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TARA over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, James A. Silverman’s Opaleye Management has the most valuable position in Protara Therapeutics, Inc. (NASDAQ:TARA), worth close to $52.1 million, comprising 13.8% of its total 13F portfolio. Coming in second is Ikarian Capital, led by Neil Shahrestani, holding a $10.4 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include James E. Flynn’s Deerfield Management, Julian Baker and Felix Baker’s Baker Bros. Advisors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to Protara Therapeutics, Inc. (NASDAQ:TARA), around 13.82% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, earmarking 0.78 percent of its 13F equity portfolio to TARA.
As one would reasonably expect, specific money managers have jumped into Protara Therapeutics, Inc. (NASDAQ:TARA) headfirst. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, created the biggest position in Protara Therapeutics, Inc. (NASDAQ:TARA). Baker Bros. Advisors had $4.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $1 million investment in the stock during the quarter. The following funds were also among the new TARA investors: Kamran Moghtaderi’s Eversept Partners, Michael Gelband’s ExodusPoint Capital, and David M. Knott’s Dorset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Protara Therapeutics, Inc. (NASDAQ:TARA) but similarly valued. We will take a look at Sify Technologies Limited (NASDAQ:SIFY), Shore Bancshares, Inc. (NASDAQ:SHBI), Marlin Business Services Corp. (NASDAQ:MRLN), and 1st Constitution Bancorp (NASDAQ:FCCY). This group of stocks’ market valuations are closest to TARA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SIFY | 1 | 408 | -1 |
| SHBI | 5 | 23001 | -1 |
| MRLN | 5 | 45956 | 0 |
| FCCY | 1 | 1786 | 0 |
| Average | 3 | 17788 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $80 million in TARA’s case. Shore Bancshares, Inc. (NASDAQ:SHBI) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Protara Therapeutics, Inc. (NASDAQ:TARA) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TARA as the stock returned 27.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.