Should I Avoid Arvinas, Inc. (ARVN)?

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 Arvinas, Inc. (NASDAQ:ARVN).

Arvinas, Inc. (NASDAQ:ARVN) has seen a decrease in activity from the world’s largest hedge funds recently. Arvinas, Inc. (NASDAQ:ARVN) was in 25 hedge funds’ portfolios at the end of September. The all time high for this statistic is 34. There were 26 hedge funds in our database with ARVN holdings at the end of June. Our calculations also showed that ARVN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a glance at the key hedge fund action encompassing Arvinas, Inc. (NASDAQ:ARVN).

Kris Jenner of Rock Springs Capital Management

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

At third quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in ARVN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Steve Cohen’s Point72 Asset Management has the largest position in Arvinas, Inc. (NASDAQ:ARVN), worth close to $55.5 million, accounting for 0.2% of its total 13F portfolio. On Point72 Asset Management’s heels is Kris Jenner, Gordon Bussard, Graham McPhail of Rock Springs Capital Management, with a $47.5 million position; the fund has 1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Marc Schneidman’s Aquilo Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to Arvinas, Inc. (NASDAQ:ARVN), around 5.29% of its 13F portfolio. Ghost Tree Capital is also relatively very bullish on the stock, designating 3.6 percent of its 13F equity portfolio to ARVN.

Because Arvinas, Inc. (NASDAQ:ARVN) has witnessed bearish sentiment from the smart money, logic holds that there were a few hedgies who sold off their entire stakes heading into Q4. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, comprising close to $39.4 million in stock. Oleg Nodelman’s fund, EcoR1 Capital, also sold off its stock, about $24.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Arvinas, Inc. (NASDAQ:ARVN) but similarly valued. We will take a look at Murphy USA Inc. (NYSE:MUSA), PS Business Parks Inc (NYSE:PSB), Enstar Group Ltd. (NASDAQ:ESGR), JOYY Inc. (NASDAQ:YY), World Wrestling Entertainment, Inc. (NYSE:WWE), Nikola Corporation (NASDAQ:NKLA), and Stitch Fix, Inc. (NASDAQ:SFIX). This group of stocks’ market valuations are closest to ARVN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $313 million in ARVN’s case. Stitch Fix, Inc. (NASDAQ:SFIX) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 12 bullish hedge fund positions. Arvinas, Inc. (NASDAQ:ARVN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARVN is 62.2. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately ARVN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ARVN were disappointed as the stock returned -12.2% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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