We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Mirati Therapeutics, Inc. (NASDAQ:MRTX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Mirati Therapeutics, Inc. (NASDAQ:MRTX) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. MRTX was in 32 hedge funds’ portfolios at the end of December. There were 35 hedge funds in our database with MRTX holdings at the end of the previous quarter. Our calculations also showed that MRTX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Samuel Isaly of OrbiMed Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the fresh hedge fund action encompassing Mirati Therapeutics, Inc. (NASDAQ:MRTX).
What have hedge funds been doing with Mirati Therapeutics, Inc. (NASDAQ:MRTX)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRTX over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, venBio Select Advisor was the largest shareholder of Mirati Therapeutics, Inc. (NASDAQ:MRTX), with a stake worth $496.1 million reported as of the end of September. Trailing venBio Select Advisor was Perceptive Advisors, which amassed a stake valued at $412.8 million. OrbiMed Advisors, Baker Bros. Advisors, and Cormorant Asset Management 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 venBio Select Advisor allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 14.57% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, earmarking 8.2 percent of its 13F equity portfolio to MRTX.
Judging by the fact that Mirati Therapeutics, Inc. (NASDAQ:MRTX) has faced bearish sentiment from hedge fund managers, we can see that there were a few fund managers that elected to cut their full holdings by the end of the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $46.4 million in stock. Christopher James’s fund, Partner Fund Management, also dumped its stock, about $33.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Mirati Therapeutics, Inc. (NASDAQ:MRTX) but similarly valued. We will take a look at Highwoods Properties Inc (NYSE:HIW), Nuance Communications Inc. (NASDAQ:NUAN), Rexford Industrial Realty Inc (NYSE:REXR), and Cosan Limited (NYSE:CZZ). All of these stocks’ market caps match MRTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HIW | 16 | 188536 | -8 |
| NUAN | 39 | 966448 | 10 |
| REXR | 21 | 50480 | 2 |
| CZZ | 12 | 300249 | -3 |
| Average | 22 | 376428 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $1719 million in MRTX’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 12 bullish hedge fund positions. Mirati Therapeutics, Inc. (NASDAQ:MRTX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MRTX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MRTX were disappointed as the stock returned -35.7% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
