Is Ligand Pharmaceuticals Inc. (LGND) A Good Stock To Buy?

The third-quarter stock market correction has turned out to resemble the situation observed during the Asian financial crisis of 1997. The two relatively short-lived corrections occurred at a time with stable interest rates, falling commodity markets, with strong-performing technology and healthcare sectors, and struggling energy sector. Similarly, the two corrections followed long periods without a correction, which had to come sooner or later and it did. Even so, several prominent hedge fund investors publicly asserted their bearish view on the current state of the U.S. equity markets, suggesting that they significantly cut their exposure to equities during the latest quarter. Having said that, it would be worthwhile to take a look at the hedge fund sentiment on Ligand Pharmaceuticals Inc. (NASDAQ:LGND) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Ligand Pharmaceuticals Inc. was in 16 hedge funds’ portfolios at the end of the third quarter of 2015. LGND investors should be aware of a decrease in enthusiasm from smart money recently. There were 19 hedge funds in our database with LGND holdings at the end of the previous quarter. At the end of this article we will also compare LGND to other stocks including Select Income REIT (NYSE:SIR), Washington Real Estate Investment Trust (NYSE:WRE), and Holly Energy Partners, L.P. (NYSE:HEP) to get a better sense of its popularity.

In the eyes of most investors, hedge funds are seen as underperforming, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the top tier of this group, around 700 funds. These money managers have their hands on most of all hedge funds’ total asset base, and by paying attention to their highest performing equity investments, Insider Monkey has deciphered many investment strategies that have historically exceeded the market. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, let’s review the new action encompassing Ligand Pharmaceuticals Inc. (NASDAQ:LGND).

How are hedge funds trading Ligand Pharmaceuticals Inc. (NASDAQ:LGND)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the second quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Dorset Management, managed by David M. Knott, holds the number one position in Ligand Pharmaceuticals Inc. (NASDAQ:LGND). Dorset Management has a $102.8 million position in the stock, comprising 29.6% of its 13F portfolio. The second largest stake is held by Cardinal Capital, led by Amy Minella, holding a $75.3 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Julian Baker and Felix Baker’s Baker Bros. Advisors, Jim Simons’ Renaissance Technologies and Ken Fisher’s Fisher Asset Management.

Due to the fact that Ligand Pharmaceuticals Inc. (NASDAQ:LGND) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedgies that decided to sell off their entire stakes in the third quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising about $10.2 million in stock. D E Shaw, also dumped its stock, about $3.8 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ligand Pharmaceuticals Inc. (NASDAQ:LGND) but similarly valued. These stocks are Select Income REIT (NYSE:SIR), Washington Real Estate Investment Trust (NYSE:WRE), Holly Energy Partners, L.P. (NYSE:HEP), and Tessera Technologies, Inc. (NASDAQ:TSRA). This group of stocks’ market values are similar to LGND’s market value.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $210 million in LGND’s case. Tessera Technologies, Inc. (NASDAQ:TSRA) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 5 bullish hedge fund positions. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) 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. In this regard TSRA might be a better candidate to consider a long position.