Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Mirati Therapeutics, Inc. (NASDAQ:MRTX) investors should pay attention to a decrease in hedge fund interest in recent months. MRTX was in 27 hedge funds’ portfolios at the end of June. There were 28 hedge funds in our database with MRTX positions at the end of the previous quarter. Our calculations also showed that MRTX isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the key hedge fund action surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX).
How have hedgies been trading Mirati Therapeutics, Inc. (NASDAQ:MRTX)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in MRTX over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Mirati Therapeutics, Inc. (NASDAQ:MRTX) was held by venBio Select Advisor, which reported holding $397.8 million worth of stock at the end of March. It was followed by Perceptive Advisors with a $298.7 million position. Other investors bullish on the company included Baker Bros. Advisors, Cormorant Asset Management, and Farallon Capital.
Because Mirati Therapeutics, Inc. (NASDAQ:MRTX) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes heading into Q3. It’s worth mentioning that Oleg Nodelman’s EcoR1 Capital sold off the largest stake of the 750 funds followed by Insider Monkey, comprising close to $25.6 million in stock. Kevin Kotler’s fund, Broadfin Capital, also sold off its stock, about $10.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mirati Therapeutics, Inc. (NASDAQ:MRTX) but similarly valued. These stocks are The Timken Company (NYSE:TKR), Eagle Materials, Inc. (NYSE:EXP), LHC Group, Inc. (NASDAQ:LHCG), and Graham Holdings Co (NYSE:GHC). This group of stocks’ market caps match MRTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TKR | 26 | 248660 | 0 |
| EXP | 36 | 681764 | 7 |
| LHCG | 26 | 108059 | 3 |
| GHC | 15 | 562705 | 0 |
| Average | 25.75 | 400297 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $1623 million in MRTX’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Graham Holdings Co (NYSE:GHC) is the least popular one with only 15 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -24.4% during the third quarter 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.
Disclosure: None. This article was originally published at Insider Monkey.
