Is ICPT A Good Stock To Buy According To Hedge Funds?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Intercept Pharmaceuticals Inc (NASDAQ:ICPT) makes for a good investment right now.

Is ICPT a good stock to buy now? Investors who are in the know were turning less bullish. The number of long hedge fund positions dropped by 2 recently. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that ICPT 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Einhorn of Greenlight Capital

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 encompassing Intercept Pharmaceuticals Inc (NASDAQ:ICPT).

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

Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ICPT over the last 21 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Sarissa Capital Management was the largest shareholder of Intercept Pharmaceuticals Inc (NASDAQ:ICPT), with a stake worth $49.8 million reported as of the end of September. Trailing Sarissa Capital Management was Rima Senvest Management, which amassed a stake valued at $32.4 million. Two Sigma Advisors, Samsara BioCapital, and Renaissance Technologies 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 Sarissa Capital Management allocated the biggest weight to Intercept Pharmaceuticals Inc (NASDAQ:ICPT), around 5.86% of its 13F portfolio. Samsara BioCapital is also relatively very bullish on the stock, dishing out 4.67 percent of its 13F equity portfolio to ICPT.

Seeing as Intercept Pharmaceuticals Inc (NASDAQ:ICPT) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of money managers who sold off their positions entirely last quarter. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, valued at close to $26.4 million in stock. Farallon Capital, also dropped its stock, about $19 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Intercept Pharmaceuticals Inc (NASDAQ:ICPT). We will take a look at Ebang International Holdings Inc. (NASDAQ:EBON), WSFS Financial Corporation (NASDAQ:WSFS), Knowles Corp (NYSE:KN), MacroGenics Inc (NASDAQ:MGNX), James River Group Holdings Ltd (NASDAQ:JRVR), Trustmark Corp (NASDAQ:TRMK), and Resideo Technologies, Inc. (NYSE:REZI). This group of stocks’ market values match ICPT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.4 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $166 million in ICPT’s case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand Ebang International Holdings Inc. (NASDAQ:EBON) is the least popular one with only 1 bullish hedge fund positions. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ICPT is 66.5. 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. 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 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 gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately ICPT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ICPT were disappointed as the stock returned -22.1% since the end of September (through 12/14) 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 many of these stocks already outperformed the market so far this year.

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