Is RETA Stock A Buy or Sell?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Reata Pharmaceuticals, Inc. (NASDAQ:RETA).

Is RETA stock a buy? Prominent investors were in a bearish mood. The number of bullish hedge fund bets were trimmed by 1 lately. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 34. Our calculations also showed that RETA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 25 hedge funds in our database with RETA holdings at the end of September.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James E. Flynn of Deerfield 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 fresh hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).

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

At the end of December, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RETA over the last 22 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Duquesne Capital was the largest shareholder of Reata Pharmaceuticals, Inc. (NASDAQ:RETA), with a stake worth $92.7 million reported as of the end of December. Trailing Duquesne Capital was Corriente Advisors, which amassed a stake valued at $64.9 million. Cormorant Asset Management, Deerfield Management, 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 Corriente Advisors allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 15.45% of its 13F portfolio. Duquesne Capital is also relatively very bullish on the stock, setting aside 2.5 percent of its 13F equity portfolio to RETA.

Seeing as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that decided to sell off their entire stakes by the end of the fourth quarter. It’s worth mentioning that Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund dumped the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $5.8 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dropped its stock, about $5.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) but similarly valued. These stocks are Acuity Brands, Inc. (NYSE:AYI), Evercore Inc. (NYSE:EVR), Lazard Ltd (NYSE:LAZ), Envestnet Inc (NYSE:ENV), Madison Square Garden Sports Corp. (NYSE:MSGS), Rush Street Interactive, Inc. (NYSE:RSI), and Open Lending Corporation (NASDAQ:LPRO). This group of stocks’ market valuations resemble RETA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $360 million in RETA’s case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 20 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RETA is 33.5. 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 RETA wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); RETA investors were disappointed as the stock returned -26.2% 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.

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