We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX).
Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) has experienced a decrease in hedge fund interest recently. Our calculations also showed that LXRX isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the latest hedge fund action surrounding Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX).
How are hedge funds trading Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)?
At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the first quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in LXRX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Opaleye Management held the most valuable stake in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), which was worth $9.3 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $3.4 million worth of shares. Moreover, Citadel Investment Group, PDT Partners, and Birchview Capital were also bullish on Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), allocating a large percentage of their portfolios to this stock.
Seeing as Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few funds that decided to sell off their positions entirely in the second quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $0.6 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also said goodbye to its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) but similarly valued. We will take a look at Model N Inc (NYSE:MODN), Preferred Apartment Communities Inc. (NYSE:APTS), National Presto Industries Inc. (NYSE:NPK), and Ready Capital Corporation (NYSE:RC). All of these stocks’ market caps resemble LXRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MODN | 12 | 112063 | -4 |
| APTS | 7 | 7218 | 0 |
| NPK | 12 | 71041 | -1 |
| RC | 6 | 46073 | -8 |
| Average | 9.25 | 59099 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $19 million in LXRX’s case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand Ready Capital Corporation (NYSE:RC) is the least popular one with only 6 bullish hedge fund positions. Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) is not the most popular stock in this group but hedge fund interest is still above average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LXRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LXRX were disappointed as the stock returned -52.1% during the third quarter 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.
