Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Avadel Pharmaceuticals plc (NASDAQ:AVDL) changed recently.
Is AVDL a good stock to buy now? Avadel Pharmaceuticals plc (NASDAQ:AVDL) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Avadel Pharmaceuticals plc (NASDAQ:AVDL) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 23. There were 23 hedge funds in our database with AVDL holdings at the end of June. Our calculations also showed that AVDL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Gendell of Tontine Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 take a look at the recent hedge fund action surrounding Avadel Pharmaceuticals plc (NASDAQ:AVDL).
Do Hedge Funds Think AVDL Is A Good Stock To Buy Now?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVDL over the last 21 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Avoro Capital Advisors (venBio Select Advisor) held the most valuable stake in Avadel Pharmaceuticals plc (NASDAQ:AVDL), which was worth $21.2 million at the end of the third quarter. On the second spot was Vivo Capital which amassed $17.8 million worth of shares. Polar Capital, Renaissance Technologies, and Tontine Asset Management 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 Ghost Tree Capital allocated the biggest weight to Avadel Pharmaceuticals plc (NASDAQ:AVDL), around 1.2% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, setting aside 1.18 percent of its 13F equity portfolio to AVDL.
Since Avadel Pharmaceuticals plc (NASDAQ:AVDL) has experienced declining sentiment from the smart money, logic holds that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Peter Kolchinsky’s RA Capital Management cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling about $25.3 million in stock, and Thomas Bailard’s Bailard Inc was right behind this move, as the fund sold off about $2.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Avadel Pharmaceuticals plc (NASDAQ:AVDL). We will take a look at First Community Bancshares Inc (NASDAQ:FCBC), Modine Manufacturing Company (NYSE:MOD), Gamco Investors Inc. (NYSE:GBL), Seneca Foods Corp. (NASDAQ:SENEB), EVI Industries Inc (NYSE:EVI), CorePoint Lodging Inc. (NYSE:CPLG), and Repro Med Systems, Inc. (NASDAQ:KRMD). This group of stocks’ market valuations match AVDL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCBC | 3 | 5312 | 0 |
| MOD | 14 | 47588 | -1 |
| GBL | 6 | 6532 | -3 |
| SENEB | 2 | 2190 | 0 |
| EVI | 1 | 18552 | -1 |
| CPLG | 10 | 24538 | -2 |
| KRMD | 15 | 15709 | 0 |
| Average | 7.3 | 17203 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.3 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $84 million in AVDL’s case. Repro Med Systems, Inc. (NASDAQ:KRMD) is the most popular stock in this table. On the other hand EVI Industries Inc (NYSE:EVI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Avadel Pharmaceuticals plc (NASDAQ:AVDL) is more popular among hedge funds. Our overall hedge fund sentiment score for AVDL is 73.5. 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. 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 percentage points. These stocks returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on AVDL as the stock returned 49% since the end of September (through 12/14) 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.
Follow Avadel Pharmaceuticals Plc (NASDAQ:AVDL)
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Disclosure: None. This article was originally published at Insider Monkey.
