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Aerie Pharmaceuticals Inc (AERI): Are Hedge Funds Right About This Stock?

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In this article you are going to find out whether hedge funds think Aerie Pharmaceuticals Inc (NASDAQ:AERI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Aerie Pharmaceuticals Inc (NASDAQ:AERI) investors should pay attention to an increase in hedge fund interest of late. Aerie Pharmaceuticals Inc (NASDAQ:AERI) was in 21 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 31. Our calculations also showed that AERI isn't among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Henrik Rhenman of Rhenman & Partners Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to check out the new hedge fund action regarding Aerie Pharmaceuticals Inc (NASDAQ:AERI).

Do Hedge Funds Think AERI Is A Good Stock To Buy Now?

At first quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in AERI a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is AERI A Good Stock To Buy?
Is AERI A Good Stock To Buy?

The largest stake in Aerie Pharmaceuticals Inc (NASDAQ:AERI) was held by Woodline Partners, which reported holding $38.5 million worth of stock at the end of December. It was followed by Partner Fund Management with a $37 million position. Other investors bullish on the company included Levin Capital Strategies, Rhenman & Partners Asset Management, and Deerfield Management. In terms of the portfolio weights assigned to each position Integral Health Asset Management allocated the biggest weight to Aerie Pharmaceuticals Inc (NASDAQ:AERI), around 1.79% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, setting aside 1.74 percent of its 13F equity portfolio to AERI.

As aggregate interest increased, key money managers were leading the bulls' herd. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, established the largest position in Aerie Pharmaceuticals Inc (NASDAQ:AERI). Woodline Partners had $38.5 million invested in the company at the end of the quarter. David Rosen's Rubric Capital Management also initiated a $8.6 million position during the quarter. The following funds were also among the new AERI investors: Brad Farber's Atika Capital, Prashanth Jayaram's Tri Locum Partners, and John Overdeck and David Siegel's Two Sigma Advisors.

Let's also examine hedge fund activity in other stocks similar to Aerie Pharmaceuticals Inc (NASDAQ:AERI). These stocks are Perdoceo Education Corporation (NASDAQ:PRDO), Argan, Inc. (NYSE:AGX), Echo Global Logistics, Inc. (NASDAQ:ECHO), DMC Global Inc. (NASDAQ:BOOM), Gogo Inc (NASDAQ:GOGO), Seacor Holdings, Inc. (NYSE:CKH), and Nicolet Bankshares Inc. (NASDAQ:NCBS). All of these stocks' market caps are closest to AERI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRDO,24,122068,7 AGX,12,61166,-2 ECHO,16,34202,1 BOOM,8,21698,0 GOGO,18,172004,5 CKH,15,121871,-5 NCBS,3,1954,-1 Average,13.7,76423,0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $158 million in AERI's case. Perdoceo Education Corporation (NASDAQ:PRDO) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 3 bullish hedge fund positions. Aerie Pharmaceuticals Inc (NASDAQ:AERI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AERI is 72.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately AERI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AERI were disappointed as the stock returned -14.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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