Is Loxo Oncology Inc (LOXO) Going to Burn These Hedge Funds?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Loxo Oncology Inc (NASDAQ:LOXO) from the perspective of those elite funds.

Loxo Oncology Inc (NASDAQ:LOXO) was in 8 hedge funds’ portfolios at the end of September. LOXO investors should be aware of a decrease in hedge fund interest in recent months. There were 10 hedge funds in our database with LOXO positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Seabridge Gold, Inc. (USA) (NYSE:SA), and National Research Corp (NASDAQ:NRCIA) to gather more data points.

To the average investor there are tons of gauges stock traders have at their disposal to value publicly traded companies. A pair of the less utilized gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top investment managers can beat the market by a very impressive amount (see the details here).

Now, let’s review the latest action encompassing Loxo Oncology Inc (NASDAQ:LOXO).

What have hedge funds been doing with Loxo Oncology Inc (NASDAQ:LOXO)?

Heading into Q4, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Aisling Capital, managed by Dennis Purcell, holds the biggest position in Loxo Oncology Inc (NASDAQ:LOXO). Aisling Capital has an $60.4 million position in the stock, comprising 10.6% of its 13F portfolio. The second largest stake is held by OrbiMed Advisors, managed by Samuel Isaly, which holds an $38 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions contain Mark Lampert’s Biotechnology Value Fund / BVF Inc, James E. Flynn’s Deerfield Management and Richard Driehaus’s Driehaus Capital.

Since Loxo Oncology Inc (NASDAQ:LOXO) has witnessed a slightly bearish sentiment from hedge fund managers, logic holds that there were a few money managers who were dropping their full holdings heading into Q4. Intriguingly, Anand Parekh’s Alyeska Investment Group cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $1.4 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.8 million worth of shares. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to Loxo Oncology Inc (NASDAQ:LOXO). We will take a look at BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Seabridge Gold, Inc. (USA) (NYSE:SA), National Research Corp (NASDAQ:NRCIA), and Luxfer Holdings PLC (ADR) (NYSE:LXFR). All of these stocks’ market caps resemble LOXO’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $161 million in LOXO’s case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand National Research Corp (NASDAQ:NRCIA) is the least popular one with only 5 bullish hedge fund positions. Loxo Oncology Inc (NASDAQ:LOXO) 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 BDSI might be a better candidate to consider a long position.