Was The Smart Money Wrong About Neurocrine Biosciences, Inc. (NBIX)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Neurocrine Biosciences, Inc. (NASDAQ:NBIX) changed recently.

Neurocrine Biosciences, Inc. (NASDAQ:NBIX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that NBIX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare NBIX to other stocks including Waters Corporation (NYSE:WAT), Varian Medical Systems, Inc. (NYSE:VAR), and Ubiquiti Inc. (NYSE:UI) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s review the new hedge fund action encompassing Neurocrine Biosciences, Inc. (NASDAQ:NBIX).

What have hedge funds been doing with Neurocrine Biosciences, Inc. (NASDAQ:NBIX)?

At Q2’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. By comparison, 34 hedge funds held shares or bullish call options in NBIX a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Neurocrine Biosciences, Inc. (NASDAQ:NBIX) was held by Perceptive Advisors, which reported holding $261.3 million worth of stock at the end of June. It was followed by Renaissance Technologies with a $181.1 million position. Other investors bullish on the company included Rock Springs Capital Management, OrbiMed Advisors, and Baker Bros. Advisors. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Neurocrine Biosciences, Inc. (NASDAQ:NBIX), around 5.75% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 4.57 percent of its 13F equity portfolio to NBIX.

Because Neurocrine Biosciences, Inc. (NASDAQ:NBIX) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that decided to sell off their positions entirely in the second quarter. Intriguingly, Franklin Parlamis’s Aequim Alternative Investments said goodbye to the largest position of all the hedgies watched by Insider Monkey, totaling close to $30.9 million in stock. Ian Simm’s fund, Impax Asset Management, also sold off its stock, about $6.5 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Neurocrine Biosciences, Inc. (NASDAQ:NBIX) but similarly valued. These stocks are Waters Corporation (NYSE:WAT), Varian Medical Systems, Inc. (NYSE:VAR), Ubiquiti Inc. (NYSE:UI), SVB Financial Group (NASDAQ:SIVB), Jacobs Engineering Group Inc. (NYSE:J), UDR, Inc. (NYSE:UDR), and CenturyLink, Inc. (NYSE:CTL). This group of stocks’ market caps resemble NBIX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $587 million. That figure was $1196 million in NBIX’s case. Waters Corporation (NYSE:WAT) is the most popular stock in this table. On the other hand SVB Financial Group (NASDAQ:SIVB) is the least popular one with only 26 bullish hedge fund positions. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NBIX is 80.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately NBIX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NBIX were disappointed as the stock returned -19.1% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.