Should You Buy VIVUS, Inc. (VVUS)?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a foolproof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong some times, as in the case of some of their top picks from the index like Micron and Anadarko. The data though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

VIVUS, Inc. (NASDAQ:VVUS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of September. 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 Marchex, Inc. (NASDAQ:MCHX), Ballard Power Systems Inc. (USA) (NASDAQ:BLDP), and Red Lion Hotels Corporation (NYSE:RLH) to gather more data points.

If you’d ask most market participants, hedge funds are perceived as worthless, old investment tools of the past. While there are more than 8000 funds trading at present, we choose to focus on the upper echelon of this club, approximately 700 funds. Most estimates calculate that this group of people commands the lion’s share of the smart money’s total capital, and by observing their inimitable stock picks, Insider Monkey has figured out various investment strategies that have historically beaten Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, we’re going to review the new action surrounding VIVUS, Inc. (NASDAQ:VVUS).

How are hedge funds trading VIVUS, Inc. (NASDAQ:VVUS)?

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, flat over the second quarter. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Conan Laughlin’s North Tide Capital has the largest position in VIVUS, Inc. (NASDAQ:VVUS), worth close to $20.5 million, amounting to 1.8% of its total 13F portfolio. Sitting at the No. 2 spot is Sarissa Capital Management, led by Alex Denner, holding a $4.2 million position; the fund has 1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Israel Englander’s Millennium Management, Michael Hintze’s CQS Cayman LP, and Renaissance Technologies.

Since VIVUS, Inc. (NASDAQ:VVUS) has faced a declination in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that Michael A. Price and Amos Meron’s Empyrean Capital Partners dumped the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $4.7 million in stock, and John Burbank’s Passport Capital was right behind this move, as the fund sold off about $0.1 million worth of shares. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to VIVUS, Inc. (NASDAQ:VVUS). We will take a look at Marchex, Inc. (NASDAQ:MCHX), Ballard Power Systems Inc. (USA) (NASDAQ:BLDP), Red Lion Hotels Corporation (NYSE:RLH), and Newtek Business Services, Corp (NASDAQ:NEWT). This group of stocks’ market values is closest to VIVUS, Inc. (NASDAQ:VVUS)’s market value.

As you can see, these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $28 million in VIVUS, Inc. (NASDAQ:VVUS)’s case. Marchex, Inc. (NASDAQ:MCHX) is the most popular stock in this table. On the other hand, Ballard Power Systems Inc. (USA) (NASDAQ:BLDP) is the least popular one with only 4 bullish hedge fund positions. VIVUS, Inc. (NASDAQ:VVUS) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Marchex, Inc. (NASDAQ:MCHX) might be a better candidate to consider a long position.