Many investors, including Carl Icahn and Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and thus, hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment towards ZS Pharma Inc (NASDAQ:ZSPH) changed recently.
Is ZS Pharma Inc undervalued? The smart money was slightly bearish in Q3, as the number of long hedge fund bets retreated by 2. ZSPH was in 20 hedge funds’ portfolios at the end of the third quarter of 2015. There were 22 hedge funds in our database with ZSPH positions at the end of the quarter prior to that. At the end of this article we will also compare ZSPH to other stocks including National Penn Bancshares (NASDAQ:NPBC), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Simpson Manufacturing Co, Inc. (NYSE:SSD) to get a better sense of its popularity.
Follow Zs Pharma Inc. (NASDAQ:ZSPH)
Follow Zs Pharma Inc. (NASDAQ:ZSPH)
According to most market participants, hedge funds are perceived as worthless, outdated investment tools of yesteryear. While there are more than 8,000 funds trading at the moment, our experts choose to focus on the upper echelon of this group, about 700 funds. Most estimates calculate that this group of people handle the lion’s share of the smart money’s total asset base, and by keeping track of their unrivaled investments, Insider Monkey has spotted various investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points annually for a decade in their back tests.
Keeping this in mind, let’s take a peek at the new action encompassing ZS Pharma Inc (NASDAQ:ZSPH).
How have hedgies been trading ZS Pharma Inc (NASDAQ:ZSPH)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a 9% fall from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or had already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Redmile Group, managed by Jeremy Green, holds the largest position in ZS Pharma Inc (NASDAQ:ZSPH). Redmile Group has a $258.5 million position in the stock, comprising 5.9% of its 13F portfolio. The second-largest stake is held by Matt Sirovich and Jeremy Mindich of Scopia Capital, with a $65.8 million position; the fund managers have 1.4% of their firm’s 13F portfolio invested in the stock. Some other members of the smart money that are bullish include Steve Cohen’s Point72 Asset Management, Matthew Halbower’s Pentwater Capital Management, and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management.
Because ZS Pharma Inc (NASDAQ:ZSPH) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedgies who sold off their positions entirely last quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the biggest stake of the 700 funds followed by Insider Monkey, totaling about $28.2 million in stock, and Christopher James’ Partner Fund Management was right behind this move, as the fund dropped about $23.6 million worth of shares. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ZS Pharma Inc (NASDAQ:ZSPH) but similarly valued. We will take a look at National Penn Bancshares (NASDAQ:NPBC), Retail Opportunity Investments Corp (NASDAQ:ROIC), Simpson Manufacturing Co, Inc. (NYSE:SSD), and Alliance Resource Partners, L.P. (NASDAQ:ARLP). This group of stocks’ market values are closest to ZSPH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NPBC | 17 | 182523 | 1 |
| ROIC | 12 | 96612 | 2 |
| SSD | 8 | 185774 | -2 |
| ARLP | 5 | 21423 | -1 |
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $458 million in ZSPH’s case. National Penn Bancshares (NASDAQ:NPBC) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks ZS Pharma Inc (NASDAQ:ZSPH) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and have a lot more capital invested in it, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
