Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Akorn, Inc. (NASDAQ:AKRX)? The smart money sentiment can provide an answer to this question.
Akorn, Inc. (NASDAQ:AKRX) shareholders have witnessed an increase in hedge fund sentiment in recent months. Our calculations also showed that AKRX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_324853" align="aligncenter" width="450"] Joshua Friedman of Canyon Capital Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the new hedge fund action encompassing Akorn, Inc. (NASDAQ:AKRX).
What does smart money think about Akorn, Inc. (NASDAQ:AKRX)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the second quarter of 2019. By comparison, 39 hedge funds held shares or bullish call options in AKRX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Akorn, Inc. (NASDAQ:AKRX), with a stake worth $35.9 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $12.8 million. Canyon Capital Advisors, Two Sigma Advisors, and Brigade Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Brigade Capital allocated the biggest weight to Akorn, Inc. (NASDAQ:AKRX), around 0.31% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to AKRX.
As industrywide interest jumped, key money managers were breaking ground themselves. Brigade Capital, managed by Don Morgan, created the biggest call position in Akorn, Inc. (NASDAQ:AKRX). Brigade Capital had $5.7 million invested in the company at the end of the quarter. Michael Platt and William Reeves's BlueCrest Capital Mgmt. also made a $0.1 million investment in the stock during the quarter. The only other fund with a brand new AKRX position is Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks similar to Akorn, Inc. (NASDAQ:AKRX). We will take a look at SilverCrest Metals Inc. (NYSE:SILV), RISE Education Cayman Ltd (NASDAQ:REDU), Teekay Offshore Partners L.P. (NYSE:TOO), and Solid Biosciences Inc. (NASDAQ:SLDB). This group of stocks' market caps match AKRX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SILV,3,15391,1 REDU,4,5559,-2 TOO,8,2440,2 SLDB,12,171806,2 Average,6.75,48799,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $83 million in AKRX's case. Solid Biosciences Inc. (NASDAQ:SLDB) is the most popular stock in this table. On the other hand SilverCrest Metals Inc. (NYSE:SILV) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Akorn, Inc. (NASDAQ:AKRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AKRX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AKRX were disappointed as the stock returned -3.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.