Is Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) a good equity to bet on 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.
Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that AMPH isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the recent hedge fund action surrounding Amphastar Pharmaceuticals Inc (NASDAQ:AMPH).
How have hedgies been trading Amphastar Pharmaceuticals Inc (NASDAQ:AMPH)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in AMPH a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), with a stake worth $12.4 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.5 million. Point72 Asset Management, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who were dropping their full holdings heading into Q3. Interestingly, David Harding's Winton Capital Management dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $0.2 million in call options. Ken Griffin's fund, Citadel Investment Group, also dumped its call options, about $0.2 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) but similarly valued. These stocks are Sonic Automotive Inc (NYSE:SAH), Upland Software Inc (NASDAQ:UPLD), Meridian Bancorp, Inc. (NASDAQ:EBSB), and Organigram Holdings Inc. (NASDAQ:OGI). This group of stocks' market caps resemble AMPH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAH,11,26993,0 UPLD,24,202112,-4 EBSB,11,83875,-4 OGI,5,9237,5 Average,12.75,80554,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $22 million in AMPH's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Organigram Holdings Inc. (NASDAQ:OGI) is the least popular one with only 5 bullish hedge fund positions. Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AMPH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AMPH investors were disappointed as the stock returned -6.1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.