The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtRecro Pharma Inc (NASDAQ:REPH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.
Recro Pharma Inc (NASDAQ:REPH) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that REPH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.
Matthew Drapkin of Becker Drapkin Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action regarding Recro Pharma Inc (NASDAQ:REPH).
What does smart money think about Recro Pharma Inc (NASDAQ:REPH)?
At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards REPH over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Recro Pharma Inc (NASDAQ:REPH), which was worth $10.1 million at the end of the third quarter. On the second spot was Engine Capital which amassed $9.3 million worth of shares. Steamboat Capital Partners, D E Shaw, and MAK Capital One 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 Engine Capital allocated the biggest weight to Recro Pharma Inc (NASDAQ:REPH), around 4.84% of its 13F portfolio. MAK Capital One is also relatively very bullish on the stock, dishing out 2.8 percent of its 13F equity portfolio to REPH.
Because Recro Pharma Inc (NASDAQ:REPH) has experienced falling interest from hedge fund managers, logic holds that there were a few funds who sold off their positions entirely by the end of the first quarter. At the top of the heap, Kevin Kotler’s Broadfin Capital cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $13.2 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $8.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.
Let’s go over hedge fund activity in other stocks similar to Recro Pharma Inc (NASDAQ:REPH). These stocks are Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), ORBCOMM Inc (NASDAQ:ORBC), Trilogy Metals Inc. (NYSE:TMQ), and LAIX Inc. (NYSE:LAIX). This group of stocks’ market values are closest to REPH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGVC | 9 | 15433 | -1 |
| ORBC | 18 | 43349 | 1 |
| TMQ | 7 | 45140 | -5 |
| LAIX | 1 | 45 | -2 |
| Average | 8.75 | 25992 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $41 million in REPH’s case. ORBCOMM Inc (NASDAQ:ORBC) is the most popular stock in this table. On the other hand LAIX Inc. (NYSE:LAIX) is the least popular one with only 1 bullish hedge fund positions. Recro Pharma Inc (NASDAQ:REPH) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately REPH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on REPH were disappointed as the stock returned -44.3% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
