Should You Buy AVEO Pharmaceuticals, Inc. (AVEO)?

Is AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) going to take off soon? The best stock pickers are getting more optimistic. The number of bullish hedge fund positions advanced by 2 lately.

To most shareholders, hedge funds are assumed to be unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at the moment, we at Insider Monkey choose to focus on the crème de la crème of this group, around 450 funds. Most estimates calculate that this group has its hands on most of all hedge funds’ total capital, and by paying attention to their highest performing picks, we have formulated a few investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Just as integral, positive insider trading sentiment is a second way to parse down the world of equities. As the old adage goes: there are many motivations for a bullish insider to downsize shares of his or her company, but just one, very clear reason why they would buy. Various empirical studies have demonstrated the impressive potential of this strategy if investors understand what to do (learn more here).

Keeping this in mind, we’re going to take a look at the key action surrounding AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO).

What have hedge funds been doing with AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO)?

At year’s end, a total of 7 of the hedge funds we track were bullish in this stock, a change of 40% from one quarter earlier. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably.

When looking at the hedgies we track, Seth Klarman’s Baupost Group had the largest position in AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), worth close to $39.5 million, accounting for 1.3% of its total 13F portfolio. Coming in second is Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, which held a $13.8 million position; 0.5% of its 13F portfolio is allocated to the stock. Some other hedge funds with similar optimism include Jim Simons’s Renaissance Technologies, D. E. Shaw’s D E Shaw and Paul Tudor Jones’s Tudor Investment Corp.

As aggregate interest increased, key hedge funds were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, created the most valuable position in AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO). Renaissance Technologies had 1.7 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new AVEO position is Cliff Asness’s AQR Capital Management.

What have insiders been doing with AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO)?

Insider purchases made by high-level executives is most useful when the company in question has experienced transactions within the past half-year. Over the latest 180-day time period, AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) has experienced 4 unique insiders buying, and 6 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO). These stocks are 3SBio Inc. (ADR) (NASDAQ:SSRX), Osiris Therapeutics, Inc. (NASDAQ:OSIR), Vical Incorporated (NASDAQ:VICL), Obagi Medical Products, Inc. (NASDAQ:OMPI), and Cambrex Corporation (NYSE:CBM). All of these stocks are in the biotechnology industry and their market caps are closest to AVEO’s market cap.