Should You Buy Inotek Pharmaceuticals Corp (ITEK)?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Is Inotek Pharmaceuticals Corp (NASDAQ:ITEK) going to take off soon?  Money managers are buying. The number of bullish hedge fund bets went up by 4 recently. ITEK was in 16 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with ITEK positions 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 Nam Tai Property Inc (NYSE:NTP), Quotient Ltd (NASDAQ:QTNT), and Ascent Capital Group Inc (NASDAQ:ASCMA) to gather more data points.

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What have hedge funds been doing with Inotek Pharmaceuticals Corp (NASDAQ:ITEK)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ITEK over the last 5 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, OrbiMed Advisors, led by Samuel Isaly, holds the biggest position in Inotek Pharmaceuticals Corp (NASDAQ:ITEK). OrbiMed Advisors has a $17.5 million position in the stock. On OrbiMed Advisors’s heels is Point72 Asset Management, led by Steve Cohen, holding a $8.3 million position. Other members of the smart money with similar optimism comprise Phill Gross and Robert Atchinson’s Adage Capital Management, James A. Silverman’s Opaleye Management and Israel Englander’s Millennium Management. 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.

As aggregate interest increased, some big names have jumped into Inotek Pharmaceuticals Corp (NASDAQ:ITEK) headfirst. DAFNA Capital Management, led by Nathan Fischel, created the most outsized position in Inotek Pharmaceuticals Corp (NASDAQ:ITEK). DAFNA Capital Management had $2.2 million invested in the company at the end of the quarter. Ken Greenberg and David Kim’s Ghost Tree Capital also made a $1.6 million investment in the stock during the quarter. The other funds with brand new ITEK positions are Jeffrey Jay and David Kroin’s Great Point Partners, Dmitry Balyasny’s Balyasny Asset Management, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Inotek Pharmaceuticals Corp (NASDAQ:ITEK). We will take a look at Nam Tai Property Inc (NYSE:NTP), Quotient Ltd (NASDAQ:QTNT), Ascent Capital Group Inc (NASDAQ:ASCMA), and Black Box Corporation (NASDAQ:BBOX). This group of stocks’ market values are closest to ITEK’s market value.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $51 million in ITEK’s case. Ascent Capital Group Inc (NASDAQ:ASCMA) is the most popular stock in this table. On the other hand Nam Tai Property Inc (NYSE:NTP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Inotek Pharmaceuticals Corp (NASDAQ:ITEK) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None