Is QLT Inc. (QLTI) A Good Stock To Buy?

It was a rough third quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during the quarter. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 14 percentage points between June 25 and October 30, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards QLT Inc. (USA) (NASDAQ:QLTI) during the quarter below.

Is QLT Inc. (USA) (NASDAQ:QLTI) a superb investment today? QLTI lost nearly 40% of its value during the third quarter. We are just wondering whether hedge funds saw this as a buying opportunity or not. Unfortunately, our calculations show that hedge funds took a bearish view. The number of bullish hedge fund bets fell by 2 in recent months. At the end of this article we will also compare QLTI to other stocks including Twin Disc Incorporated (NASDAQ:TWIN), SandRidge Energy Inc. (NYSE:SD), and Datalink Corporation (NASDAQ:DTLK) to get a better sense of its popularity.

In the eyes of most market participants, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are more than 8000 funds in operation today, We look at the upper echelon of this group, about 700 funds. These investment experts handle bulk of the smart money’s total asset base, and by following their top picks, Insider Monkey has determined many investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per annum for a decade in their back tests. Hedge fund sentiment as an indicator doesn’t work all the time but it has been a useful one on average.

With all of this in mind, we’re going to check out the fresh action encompassing QLT Inc. (USA) (NASDAQ:QLTI).

How are hedge funds trading QLT Inc. (USA) (NASDAQ:QLTI)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Broadfin Capital, managed by Kevin Kotler, holds the most valuable position in QLT Inc. (USA) (NASDAQ:QLTI). Broadfin Capital has a $11.8 million position in the stock, comprising 0.7% of its 13F portfolio. On Broadfin Capital’s heels is BVF Inc, managed by Mark Lampert, which holds a $9.9 million position; the fund has 2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Matt Sirovich and Jeremy Mindich’s Scopia Capital, Michael Blitzer’s Kingstown Capital Management and John A. Levin’s Levin Capital Strategies.

Due to the fact that QLT Inc. (USA) (NASDAQ:QLTI) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds who were dropping their full holdings in the third quarter. It’s worth mentioning that Steven Boyd’s Armistice Capital said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $2.7 million in stock, and Peter S. Park’s Park West Asset Management was right behind this move, as the fund dumped about $2.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to QLT Inc. (USA) (NASDAQ:QLTI). These stocks are Twin Disc, Incorporated (NASDAQ:TWIN), SandRidge Energy Inc. (NYSE:SD), Datalink Corporation (NASDAQ:DTLK), and Silicon Graphics International Corp (NASDAQ:SGI). This group of stocks’ market caps are closest to QLTI’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $60 million in QLTI’s case. SandRidge Energy Inc. (NYSE:SD) is the most popular stock in this table. On the other hand Twin Disc, Incorporated (NASDAQ:TWIN) is the least popular one with only 7 bullish hedge fund positions. QLT Inc. (USA) (NASDAQ:QLTI) is not the most popular stock in this group but hedge fund interest is still above average. This is a positive signal however, we don’t like the fact that some hedge funds cut their losses and got out of the stock. QLTI may be an attractive stock but we’d like to see bullish activity before spending hours on researching a stock.