Is ARNA Stock A Buy or Sell?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).

Is ARNA stock a buy or sell? Hedge funds were in a bearish mood. The number of bullish hedge fund positions shrunk by 4 lately. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was in 39 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 43. Our calculations also showed that ARNA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 43 hedge funds in our database with ARNA positions at the end of the third quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to view the recent hedge fund action surrounding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).

Do Hedge Funds Think ARNA Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in ARNA over the last 22 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Avoro Capital Advisors (venBio Select Advisor) was the largest shareholder of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), with a stake worth $321.9 million reported as of the end of December. Trailing Avoro Capital Advisors (venBio Select Advisor) was Alkeon Capital Management, which amassed a stake valued at $134.6 million. Holocene Advisors, Farallon Capital, and Perceptive 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 Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 5.54% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, dishing out 5.17 percent of its 13F equity portfolio to ARNA.

Seeing as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers who were dropping their full holdings heading into Q1. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, totaling about $98 million in stock, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP was right behind this move, as the fund said goodbye to about $43.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q1.

Let’s now review hedge fund activity in other stocks similar to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). We will take a look at Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Acuity Brands, Inc. (NYSE:AYI), Evercore Inc. (NYSE:EVR), Lazard Ltd (NYSE:LAZ), Envestnet Inc (NYSE:ENV), Madison Square Garden Sports Corp. (NYSE:MSGS), and Rush Street Interactive, Inc. (NYSE:RSI). This group of stocks’ market valuations are similar to ARNA’s market valuation.

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As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $498 million. That figure was $895 million in ARNA’s case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 20 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARNA is 67.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately ARNA wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ARNA were disappointed as the stock returned -1.2% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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