Should You Avoid Impax Laboratories Inc (IPXL)?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Impax Laboratories Inc (NASDAQ:IPXL) shareholders have witnessed a decrease in support from the world’s most successful money managers of late. IPXL was in 16 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with IPXL holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Brady Corp (NYSE:BRC), VeriFone Systems Inc (NYSE:PAY), and Wix.Com Ltd (NASDAQ:WIX) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Now, we’re going to take a glance at the key action surrounding Impax Laboratories Inc (NASDAQ:IPXL).

What does the smart money think about Impax Laboratories Inc (NASDAQ:IPXL)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 11% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in IPXL at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Auerbach’s Hound Partners has the largest position in Impax Laboratories Inc (NASDAQ:IPXL), worth close to $147 million, amounting to 4% of its total 13F portfolio. The second largest stake is held by OrbiMed Advisors, led by Samuel Isaly, which has an $89.8 million position; 1% of its 13F portfolio is allocated to the company. Some other peers that are bullish consist of Anand Parekh’s Alyeska Investment Group, Steve Cohen’s Point72 Asset Management and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Seeing as Impax Laboratories Inc (NASDAQ:IPXL) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who were dropping their full holdings by the end of the third quarter. Interestingly, Yen Liow’s Aravt Global got rid of the largest stake of all the investors tracked by Insider Monkey, worth about $64.3 million in stock, and Alan Fournier’s Pennant Capital Management was right behind this move, as the fund dumped about $56.2 million worth of IPXL shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Impax Laboratories Inc (NASDAQ:IPXL) but similarly valued. We will take a look at Brady Corp (NYSE:BRC), VeriFone Systems Inc (NYSE:PAY), Wix.Com Ltd (NASDAQ:WIX), and Theravance Biopharma Inc (NASDAQ:TBPH). This group of stocks’ market values are similar to IPXL’s market value.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $339 million. That figure was $313 million in IPXL’s case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand Theravance Biopharma Inc (NASDAQ:TBPH) is the least popular one with only 12 bullish hedge fund positions. Impax Laboratories Inc (NASDAQ:IPXL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WIX might be a better candidate to consider taking a long position in.

Disclosure: none.