This Metric Says You Are Smart to Sell Akorn, Inc. (AKRX)

Akorn, Inc. (NASDAQ:AKRX) was in 8 hedge funds’ portfolio at the end of March. AKRX shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 11 hedge funds in our database with AKRX positions at the end of the previous quarter.

If you’d ask most market participants, hedge funds are perceived as worthless, old investment vehicles of years past. While there are more than 8000 funds trading at the moment, we choose to focus on the upper echelon of this group, close to 450 funds. It is estimated that this group controls the lion’s share of the hedge fund industry’s total asset base, and by watching their best stock picks, we have discovered a number of investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Just as integral, bullish insider trading activity is a second way to parse down the world of equities. Obviously, there are plenty of reasons for a corporate insider to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Plenty of academic studies have demonstrated the market-beating potential of this strategy if “monkeys” understand where to look (learn more here).

Consequently, let’s take a glance at the recent action surrounding Akorn, Inc. (NASDAQ:AKRX).

What does the smart money think about Akorn, Inc. (NASDAQ:AKRX)?

At the end of the first quarter, a total of 8 of the hedge funds we track held long positions in this stock, a change of -27% from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly.

According to our comprehensive database, Clough Capital Partners, managed by Charles Clough, holds the most valuable position in Akorn, Inc. (NASDAQ:AKRX). Clough Capital Partners has a $16.1 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Jerome Pfund and Michael Sjostrom of Sectoral Asset Management, with a $11 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other hedge funds with similar optimism include James Dondero’s Highland Capital Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

Judging by the fact that Akorn, Inc. (NASDAQ:AKRX) has faced a declination in interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers who were dropping their entire stakes last quarter. At the top of the heap, Van Schreiber’s Bennett Lawrence Management said goodbye to the largest investment of all the hedgies we watch, worth close to $9.6 million in stock.. Sanford J. Colen’s fund, Apex Capital, also said goodbye to its stock, about $9.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds last quarter.

What have insiders been doing with Akorn, Inc. (NASDAQ:AKRX)?

Insider trading activity, especially when it’s bullish, is best served when the company we’re looking at has seen transactions within the past 180 days. Over the last 180-day time frame, Akorn, Inc. (NASDAQ:AKRX) has seen 1 unique insiders buying, and 5 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Akorn, Inc. (NASDAQ:AKRX). These stocks are Hi-Tech Pharmacal Co. (NASDAQ:HITK), Sagent Pharmaceuticals Inc (NASDAQ:SGNT), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks are in the drugs – generic industry and their market caps match AKRX’s market cap.

With the returns shown by our tactics, retail investors should always keep an eye on hedge fund and insider trading sentiment, and Akorn, Inc. (NASDAQ:AKRX) shareholders fit into this picture quite nicely.

Click here to learn why you should track hedge funds