St. Jude Medical, Inc. (NYSE:STJ) recently made a buyout offer for Thoratec Corporation (NASDAQ:THOR) to the tune of $3.4 billion. The purchase price offered a 10% premium on Thoratec’s closing stock price prior to the announcement of the offer. The smaller of the two hearing device makers, Thoratec Corporation (NASDAQ:THOR) is open to rival offers for the next 30 days under the terms of the agreement. In the event that the deal goes through, it is expected that it will close in the fourth quarter. The main catalyst for the deal could possibly be the approval that Thoratec Corporation (NASDAQ:THOR) received this month for the sale of its HeartMate PHP device in Europe, which the company intends to release later this year. Given this development we can question the fairness of the mere 10% premium, which is exactly what WeissLaw LLP, a national class action shareholder rights firm is investigating. The firm is ensuring that the definitive agreement is bereft of any breaches in fiduciary duty and that the Directors acted in the best interest of the shareholders.
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The smart money has generally been bullish about the prospects of St. Jude Medical, Inc. (NYSE:STJ). During the first quarter the number of funds among those that we track, invested in the company increased to 37, with an aggregate investment of $630.79 million, compared to 33 funds with $523.32 million in shares held at the end of the previous quarter. The stock price climbed by about 2.8% in the same period.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 139% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
As far as insider trading surrounding St. Jude Medical, Inc. (NYSE:STJ) is concerned, no insider purchases have been detected so far this year, while prominent insider sales include those made by CEO Daniel Starks, who disposed of about 100,000 shares in April, and by Vice President Jeff Fecho, who has liquidated about 14,000 shares this year. It should be duly noted that insider sales are not as strong a signal as insider purchases since they can occur due to a wide variety of reasons and not just a bearish outlook.
Now let us take a closer look at whch particular segments in the hedge fund industry have been exuberant about St. Jude Medical, Inc. (NYSE:STJ).
How have hedgies been trading St. Jude Medical, Inc. (NYSE:STJ)?
Heading into the second trimester, a total of 37 of the hedge funds tracked by Insider Monkey were long in this stock, an increase of 12% from the fourth quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes significantly.
According to hedge fund intelligence website Insider Monkey, Curtis Macnguyen‘s Ivory Capital Investment Mgmt., holds the number one position in St. Jude Medical, Inc. (NYSE:STJ). Ivory Capital has a $113.3 million position in the stock, comprising 2.7% of its 13F portfolio. Coming in second is Conatus Capital Management, led by David Stemerman, holding an $86.1 million position; 5.4% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass Joel Greenblatt‘s Gotham Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Dmitry Balyasny’s Balyasny Asset Management.
As industrywide interest jumped, some big names have jumped into St. Jude Medical, Inc. (NYSE:STJ) headfirst. The list includes the aforementioned Ivory Capital and Conatus Capital Management, which initiated their positions during the March quarter. Other funds with brand new St. Jude positions were Louis Bacon’s Moore Global Investments, Glenn Russell Dubin’s Highbridge Capital Management, and Neil Chriss’ Hutchin Hill Capital.
From a risk arbitrage point of view, the investment in St. Jude Medical, Inc. (NYSE:STJ) at the current level might seem attractive, but if an investor wants to hold the stock for the long term, we would suggest holding onto the horses until Weiss Law’s investigation has ended.
Disclosure: None
