Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Paratek Pharmaceuticals Inc (NASDAQ:PRTK).
Paratek Pharmaceuticals Inc (NASDAQ:PRTK) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as The GDL Fund (NYSE:GDL), La Jolla Pharmaceutical Company (NASDAQ:LJPC), and Evans Bancorp Inc. (NYSEAMEX:EVBN) to gather more data points.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to check out the fresh hedge fund action surrounding Paratek Pharmaceuticals Inc (NASDAQ:PRTK).
How have hedgies been trading Paratek Pharmaceuticals Inc (NASDAQ:PRTK)?
At Q1’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PRTK over the last 15 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Paratek Pharmaceuticals Inc (NASDAQ:PRTK) was held by Highland Capital Management, which reported holding $13 million worth of stock at the end of March. It was followed by Baupost Group with a $12.8 million position. Other investors bullish on the company included Armistice Capital, Arbiter Partners Capital Management, and Roumell Asset Management.
Because Paratek Pharmaceuticals Inc (NASDAQ:PRTK) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who were dropping their positions entirely in the third quarter. At the top of the heap, Daniel S. Och’s OZ Management dropped the largest investment of all the hedgies watched by Insider Monkey, valued at about $0.3 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Paratek Pharmaceuticals Inc (NASDAQ:PRTK). We will take a look at The GDL Fund (NYSE:GDL), La Jolla Pharmaceutical Company (NASDAQ:LJPC), Evans Bancorp Inc. (NYSEAMEX:EVBN), and Aquestive Therapeutics, Inc. (NASDAQ:AQST). All of these stocks’ market caps are similar to PRTK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GDL | 3 | 5825 | 0 |
| LJPC | 13 | 78535 | 0 |
| EVBN | 3 | 5288 | 0 |
| AQST | 2 | 15291 | -2 |
| Average | 5.25 | 26235 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $57 million in PRTK’s case. La Jolla Pharmaceutical Company (NASDAQ:LJPC) is the most popular stock in this table. On the other hand Aquestive Therapeutics, Inc. (NASDAQ:AQST) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Paratek Pharmaceuticals Inc (NASDAQ:PRTK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PRTK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRTK were disappointed as the stock returned -28.4% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
