Should You Avoid Spectrum Pharmaceuticals, Inc. (SPPI)?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) has experienced a decrease in enthusiasm from smart money recently. There were 11 hedge funds in our database with SPPI positions at the end of September. At the end of this article we will also compare SPPI to other stocks including Heska Corp (NASDAQ:HSKA), Peapack-Gladstone Financial Corp (NASDAQ:PGC), and China Cord Blood Corp (NYSE:CO) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, we’re going to take a look at the latest action regarding Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).

How are hedge funds trading Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPPI over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), worth close to $25.9 million, amounting to less than 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is D E Shaw, with a $9.4 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital 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.

Because Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) has sustained declining sentiment from the smart money, we can see that there were a few money managers who were dropping their positions entirely last quarter. It’s worth mentioning that Joel Greenblatt’s Gotham Asset Management cut the largest stake of all the investors followed by Insider Monkey, valued at about $0.3 million in stock. David Costen Haley’s fund, HBK Investments, also dropped its stock, about $0.2 million worth.

Let’s go over hedge fund activity in other stocks similar to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). We will take a look at Heska Corp (NASDAQ:HSKA), Peapack-Gladstone Financial Corp (NASDAQ:PGC), China Cord Blood Corp (NYSE:CO), and Atlantic Capital Bancshares Inc (NASDAQ:ACBI). All of these stocks’ market caps are similar to SPPI’s market cap.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $40 million in SPPI’s case. Heska Corp (NASDAQ:HSKA) is the most popular stock in this table. On the other hand China Cord Blood Corp (NYSE:CO) is the least popular one with only 5 bullish hedge fund positions. Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) is the most popular stock in this group along with HSKA. Given that info, the stock might be worth a closer look.

Disclosure: None