Our research has shown us that hedge funds are particularly adept at generating large returns from small-cap stocks. By investing in their top small-cap picks from 1999 through 2009, investors would have seen returns that outperformed the market by 18 percentage points per year, and those returns came with little risk. That’s a significant improvement over their large caps, which were only able to marginally outperform the market.
That’s why we’re particularly pleased to share some insight with you on some of the hottest small-cap healthcare stocks among hedge funds right now, those which have seen large increases in fund ownership over the course of the last quarter. These companies all weigh in with market caps of less than $2 billion, and most are under $1 billion. Furthermore, they all had a minimum of 15 funds invested in them, or slightly more than 2% of all the funds we track, and many of them saw increases in fund ownership of more than double since the previous filing period.
Let’s take a look at some of these companies and try to shed some light on what is making them so attractive to investors.
Volcano Corporation (NASDAQ:VOLC) has been in our news quite a bit lately thanks to several bullish investors, including Mario Gabelli, Stephen Dubois, and Glenn G. Welling.Welling went activist towards the end of the third quarter and demanded a shakeup of the board. In the fourth quarter, funds took notice, as ownership increased by a lucky 77.7%. Among the new owners last quarter were Gabelli, Israel Englander, and Paul Glazer’s Glazer Capital. In the middle of December, Volcano leapt more than 50%, as it was announced it would be acquired by Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) for $18.00 per share.
AMAG Pharmaceuticals Inc. (NASDAQ:AMAG) enjoyed a tremendous fourth quarter after it announced it had acquired Lumara Health Inc. in late September, and continued a run of earnings beats in late October. Fund ownership in AMAG increased 75% during the fourth quarter, a period during which the stock gained 33.56%. AMAG is up slightly in 2015. Paul Tudor Jones’ Tudor Investment Corp, and Lee Munder’s Lee Munder Capital Group are a couple of the funds that made a move into AMAG in the fourth quarter.
Relypsa Inc (NASDAQ:RLYP)’s fund ownership nearly doubled in the fourth quarter, to 22, as Jim Simons and David E. Shaw among others, became new investors of the biopharmaceutical company. Relypsa’s Patiromer for Oral Suspension for the treatment of hyperkalemia is currently under review by the U.S Food and Drug Administration, and if approved, would be the first treatment approved for the condition in over 50 years. Relypsa was given a glowing recommendation by analysts at Wedbush in late January, as they gave it a $63.00 price target, an upside on current share prices of over 75%. Relypsa is up 14.45% year-to-date.
Quidel Corporation (NASDAQ:QDEL) is a leading diagnostic healthcare solutions provider, based in San Diego, with a market cap of $898 million. It’s been well over a year since we reported on anything Quidel related, as the company was in the midst of closing out a very strong 2013. Quidel has been up and down since then, but funds became very interested in it during the past quarter, as ownership more than doubled. Among the funds with new positions in Quidel are Steve Cohen’s Point72 Asset Management, and Israel Englander’s Millennium Management. Quidel announced strong fourth quarter, 2014 earnings on February 11, with earnings per share of $0.37, trouncing estimates of $0.09.
Inogen Inc (NASDAQ:INGN) is our final hot healthcare stock, a $634 million market cap company that has developed innovative oxygen concentrators for the treatment of chronic respiratory conditions. Fund ownership in Inogen tripled last quarter, as shares rose 50% to close out the year. Shares are up another 6.28% year-to-date, and over 120% lifetime since it went public in early 2014. Investors who are breathing easier with Inogen in their portfolios include Anand Parekh of Alyeska Investment Group, and Robert B. Gillam of McKinley Capital Management.
Disclosure: None
