The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) from the perspective of those elite funds.
Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) was in 5 hedge funds’ portfolios at the end of the third quarter of 2018. AMPH investors should be aware of a decrease in enthusiasm from smart money recently. There were 7 hedge funds in our database with AMPH positions at the end of the previous quarter. Our calculations also showed that AMPH isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a glance at the fresh hedge fund action encompassing Amphastar Pharmaceuticals Inc (NASDAQ:AMPH).
Hedge fund activity in Amphastar Pharmaceuticals Inc (NASDAQ:AMPH)
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AMPH over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) was held by Renaissance Technologies, which reported holding $3.6 million worth of stock at the end of September. It was followed by Millennium Management with a $1.6 million position. Other investors bullish on the company included GLG Partners, Blue Mountain Capital, and AQR Capital Management.
Judging by the fact that Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Ken Fisher’s Fisher Asset Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) but similarly valued. We will take a look at Forestar Group Inc. (NYSE:FOR), Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), InflaRx N.V. (NASDAQ:IFRX), and Origin Bancorp, Inc. (NASDAQ:OBNK). This group of stocks’ market valuations match AMPH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FOR | 5 | 98922 | -1 |
| SOI | 14 | 80650 | -1 |
| IFRX | 14 | 300130 | 4 |
| OBNK | 6 | 23723 | 1 |
| Average | 9.75 | 125856 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $6 million in AMPH’s case. Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is the most popular stock in this table. On the other hand Forestar Group Inc. (NYSE:FOR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) is even less popular than FOR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
