Should I Avoid Zogenix, Inc. (ZGNX)?

In this article you are going to find out whether hedge funds think Zogenix, Inc. (NASDAQ:ZGNX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Zogenix, Inc. (NASDAQ:ZGNX) investors should pay attention to a decrease in hedge fund sentiment in recent months. Zogenix, Inc. (NASDAQ:ZGNX) was in 26 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that ZGNX 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. With all of this in mind we’re going to review the key hedge fund action surrounding Zogenix, Inc. (NASDAQ:ZGNX).

Dmitry Balyasny of Balyasny Asset Management

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

At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZGNX over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zogenix, Inc. (NASDAQ:ZGNX) was held by RA Capital Management, which reported holding $50.6 million worth of stock at the end of September. It was followed by Cadian Capital with a $48.7 million position. Other investors bullish on the company included Farallon Capital, Marshall Wace LLP, and Redmile Group. In terms of the portfolio weights assigned to each position HealthInvest Partners AB allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 5.01% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, designating 4.1 percent of its 13F equity portfolio to ZGNX.

Because Zogenix, Inc. (NASDAQ:ZGNX) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Warren Lammert’s Granite Point Capital said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising about $10.4 million in stock. Brandon Haley’s fund, Holocene Advisors, also dumped its stock, about $6.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Zogenix, Inc. (NASDAQ:ZGNX) but similarly valued. We will take a look at Kimbell Royalty Partners, LP (NYSE:KRP), BioXcel Therapeutics, Inc. (NASDAQ:BTAI), Merus N.V. (NASDAQ:MRUS), NOW Inc (NYSE:DNOW), Momentus Inc. (NASDAQ:MNTS), Hyster-Yale Materials Handling Inc (NYSE:HY), and AEye Inc. (NASDAQ:LIDR). This group of stocks’ market valuations resemble ZGNX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $273 million in ZGNX’s case. Merus N.V. (NASDAQ:MRUS) is the most popular stock in this table. On the other hand BioXcel Therapeutics, Inc. (NASDAQ:BTAI) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) is more popular among hedge funds. Our overall hedge fund sentiment score for ZGNX is 73.5. 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. 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 still beat the market by 5.1 percentage points. Unfortunately ZGNX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ZGNX were disappointed as the stock returned -14.3% since the end of the third quarter (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 most of these stocks already outperformed the market since 2019.

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