Is RARE Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).

Is RARE stock a buy? Investors who are in the know were becoming hopeful. The number of long hedge fund positions moved up by 6 in recent months. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RARE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

To the average investor there are a lot of indicators stock traders put to use to analyze publicly traded companies. Some of the less known indicators are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite fund managers can outperform their index-focused peers by a solid margin (see the details here).

Kris Jenner of Rock Springs Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a look at the key hedge fund action surrounding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).

Do Hedge Funds Think RARE Is A Good Stock To Buy Now?

At the end of December, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RARE over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Alkeon Capital Management was the largest shareholder of Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), with a stake worth $181.5 million reported as of the end of December. Trailing Alkeon Capital Management was D E Shaw, which amassed a stake valued at $99 million. Rock Springs Capital Management, Citadel Investment Group, and Baker Bros. Advisors 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 Rock Springs Capital Management allocated the biggest weight to Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), around 1.66% of its 13F portfolio. Atika Capital is also relatively very bullish on the stock, earmarking 0.96 percent of its 13F equity portfolio to RARE.

As one would reasonably expect, some big names were leading the bulls’ herd. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, created the most valuable position in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). Baker Bros. Advisors had $61.5 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $22.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Renaissance Technologies, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) but similarly valued. These stocks are RH (NYSE:RH), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Shaw Communications Inc (NYSE:SJR), The Western Union Company (NYSE:WU), Flex Ltd. (NASDAQ:FLEX), Newell Brands Inc. (NYSE:NWL), and Pinnacle West Capital Corporation (NYSE:PNW). This group of stocks’ market values are similar to RARE’s market value.

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As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $883 million. That figure was $609 million in RARE’s case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RARE is 66.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately RARE wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); RARE investors were disappointed as the stock returned -23.9% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.

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