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2019 Review: Most Favored Hedge Fund Stocks vs. Mirati Therapeutics, Inc. (MRTX)

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Mirati Therapeutics, Inc. (NASDAQ:MRTX).

Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 33 hedge funds' portfolios at the end of September. MRTX shareholders have witnessed an increase in enthusiasm from smart money of late. There were 27 hedge funds in our database with MRTX holdings at the end of the previous quarter. Our calculations also showed that MRTX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_25717" align="alignnone" width="548"] Steven Cohen of Point72 Asset Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a look at the fresh hedge fund action surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX).

What does smart money think about Mirati Therapeutics, Inc. (NASDAQ:MRTX)?

At Q3's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRTX over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MRTX A Good Stock To Buy?

The largest stake in Mirati Therapeutics, Inc. (NASDAQ:MRTX) was held by venBio Select Advisor, which reported holding $292.2 million worth of stock at the end of September. It was followed by Perceptive Advisors with a $258.2 million position. Other investors bullish on the company included Cormorant Asset Management, Baker Bros. Advisors, and Point72 Asset Management. In terms of the portfolio weights assigned to each position venBio Select Advisor allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 12.19% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, designating 7.59 percent of its 13F equity portfolio to MRTX.

As aggregate interest increased, some big names were breaking ground themselves. OrbiMed Advisors, managed by Samuel Isaly, established the biggest position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). OrbiMed Advisors had $41.7 million invested in the company at the end of the quarter. Christopher James's Partner Fund Management also initiated a $33.6 million position during the quarter. The other funds with brand new MRTX positions are Steve Cohen's Point72 Asset Management, Israel Englander's Millennium Management, and Brandon Haley's Holocene Advisors.

Let's now review hedge fund activity in other stocks similar to Mirati Therapeutics, Inc. (NASDAQ:MRTX). These stocks are Atlantic Union Bankshares Corporation (NASDAQ:AUB), NuStar Energy L.P. (NYSE:NS), SiteOne Landscape Supply, Inc. (NYSE:SITE), and Regal Beloit Corporation (NYSE:RBC). This group of stocks' market caps match MRTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUB,3,19925,0 NS,2,1883,0 SITE,13,53748,1 RBC,18,205507,1 Average,9,70266,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $1155 million in MRTX's case. Regal Beloit Corporation (NYSE:RBC) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Mirati Therapeutics, Inc. (NASDAQ:MRTX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MRTX as the stock returned 202.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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