Should you buy Merrimack Pharmaceuticals Inc (NASDAQ:MACK) stock today? The firm’s share price surged 10.22% on June 18 to attain a closing price of $12.19 after a heavy volume day. The stock has had an average volume of 1.07 million shares traded per day in the last month but Thursday saw 2.16 million shares trade hands in over 11,000 transactions. Year-to-date, the stock has climbed 9.92% while over the past 12 months, the stock has surged 59.55%. There was no notable news yesterday behind the stock’s move.
Apart from this positive sign on the market for Merrimack Pharmaceuticals Inc (NASDAQ:MACK) on Thursday, several brokerage firms are also bullish on the stock. For example, in mid-May, Guggenheim Securities initiated coverage on the stock with a ‘Buy’ rating and a price target of $15 per share. Meanwhile, Cantor Fitzgerald on Monday reaffirmed its ‘Buy’ rating on the stock with a price target of $16 per share. John M. Dineen has been elected to the company’s Board of Directors, it was also revealed on Monday.
Here at Insider Monkey, however, our focus leads us to look at the activities of hedge funds when it comes to companies like Merrimack Pharmaceuticals Inc. Of the funds we track, there were 14 hedge funds which had long positions in the company by the end of the first quarter. That is, however, unchanged compared to the previous quarter which means the stock had neutral hedge fund sentiment by the end of this year’s maiden quarter.
Why do we look at hedge fund and insider sentiment for stocks, especially for small caps? Hedge funds spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. When it comes to our preference for small-cap picks, while some hedge funds’ returns have been strong the past two years, we also know that the returns of hedge funds as a whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 144% and beaten the market by more than 84 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
When it comes to insider sentiment, Micheal Porter, a director at the company, has been slowly building up his holdings in the company with seven purchases beginning in March, upping his holdings from 638,164 shares to 661,448. Aside from Mr. Porter, however, more of his fellow insiders at Merrimack Pharmaceuticals Inc have been selling their shares recently. For example, President and CEO Robert Mulroy sold 286,753 of his shares in trades made from February to March.
With this in mind, we will take a deeper dive into the recent hedge fund activity surrounding Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
What have hedge funds been doing with Merrimack Pharmaceuticals Inc (NASDAQ:MACK)?
Heading into Q2, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter.
Of the funds tracked by Insider Monkey, Dmitry Balyasny’s Balyasny Asset Management had the biggest position in Merrimack Pharmaceuticals Inc (NASDAQ:MACK), worth close to $12 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $10.6 million position. Englander’s fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining hedgies with similar optimism include George McCabe’s Portolan Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Peter Kolchinsky’s RA Capital Management.
On the other side of the coin, hedge funds which have sold their shares in Merrimack Pharmaceuticals Inc (NASDAQ:MACK) include Jim Simons’ Renaissance Technologies, which dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $2.9 million in stock. D. E. Shaw’s fund, D. E. Shaw, also bid farewell to its stock to the tune of about $0.8-million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same. This is a bearish signal in our experience.
Also noteworthy to us is the fact that while shares of the company were up by about 4% in Q1 and the number of hedge funds with long positions stayed the same, the value of hedge funds’ aggregate investment in the company dropped to $35.14 from $37.57 million. This is also a slightly bearish signal in our experience.
Even though there is a positive signal in purchases made by one of the company’s directors, considering the slightly bearish hedge fund sentiment and the fact that we prefer to recommend stocks with strong insider and hedge fund sentiment signals, we don’t recommend a buy into Merrimack Pharmaceuticals Inc (NASDAQ:MACK) at the moment.
Disclosure: None
