Is Depomed Inc (DEPO) A Good Stock To Buy?

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Depomed Inc (NASDAQ:DEPO) investors should pay attention to a decrease in hedge fund interest recently. DEPO was in 18 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with DEPO holdings at the end of the previous quarter. At the end of this article we will also compare DEPO to other stocks including EXACT Sciences Corporation (NASDAQ:EXAS), Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI), and M.D.C. Holdings, Inc. (NYSE:MDC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How have hedgies been trading Depomed Inc (NASDAQ:DEPO)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards DEPO over the last 5 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Smith’s Starboard Value LP holds the largest position in Depomed Inc (NASDAQ:DEPO) which has a $150.2 million position in the stock, comprising 4.1% of its 13F portfolio. On Starboard Value LP’s heels is Richard Mashaal’s Rima Senvest Management, which holds a $103.1 million position; the fund has 7.4% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Curtis Schenker and Craig Effron’s Scoggin, Manoneet Singh’s Kavi Asset Management and Joseph Edelman’s Perceptive Advisors. We should note that Starboard Value LP is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cut their entire stakes in the stock during the third quarter. It’s worth mentioning that Mitchell Blutt’s Consonance Capital Management cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $44.6 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $4 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to Depomed Inc (NASDAQ:DEPO). These stocks are EXACT Sciences Corporation (NASDAQ:EXAS), Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI), M.D.C. Holdings, Inc. (NYSE:MDC), and Stratasys, Ltd. (NASDAQ:SSYS). All of these stocks’ market caps are closest to DEPO’s market cap.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $411 million in DEPO’s case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand M.D.C. Holdings, Inc. (NYSE:MDC) is the least popular one with only 11 bullish hedge fund positions. Depomed Inc (NASDAQ:DEPO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EXAS might be a better candidate to consider taking a long position in.

Disclosure: None