Is Avadel Pharmaceuticals plc (NASDAQ:AVDL) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Avadel Pharmaceuticals plc (NASDAQ:AVDL) investors should be aware of an increase in activity from the world's largest hedge funds in recent months. AVDL was in 7 hedge funds' portfolios at the end of the third quarter of 2019. There were 5 hedge funds in our database with AVDL holdings at the end of the previous quarter. Our calculations also showed that AVDL 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.
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_261247" align="alignnone" width="600"] Kevin Kotler of Broadfin Capital[/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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to view the latest hedge fund action encompassing Avadel Pharmaceuticals plc (NASDAQ:AVDL).
What does smart money think about Avadel Pharmaceuticals plc (NASDAQ:AVDL)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 40% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in AVDL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Kevin Kotler's Broadfin Capital has the number one position in Avadel Pharmaceuticals plc (NASDAQ:AVDL), worth close to $12.9 million, amounting to 2.4% of its total 13F portfolio. The second most bullish fund manager is Deerfield Management, led by James E. Flynn, holding a $11.3 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Renaissance Technologies, Jeffrey Gendell's Tontine Asset Management and Efrem Kamen's Pura Vida Investments. In terms of the portfolio weights assigned to each position Broadfin Capital allocated the biggest weight to Avadel Pharmaceuticals plc (NASDAQ:AVDL), around 2.39% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to AVDL.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Tontine Asset Management, managed by Jeffrey Gendell, initiated the largest position in Avadel Pharmaceuticals plc (NASDAQ:AVDL). Tontine Asset Management had $1.5 million invested in the company at the end of the quarter. Efrem Kamen's Pura Vida Investments also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.
Let's check out hedge fund activity in other stocks similar to Avadel Pharmaceuticals plc (NASDAQ:AVDL). We will take a look at Provident Financial Holdings, Inc. (NASDAQ:PROV), Xunlei Ltd (NASDAQ:XNET), OFS Capital Corp (NASDAQ:OFS), and RigNet Inc (NASDAQ:RNET). This group of stocks' market values match AVDL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PROV,1,9382,0 XNET,2,425,-3 OFS,2,3102,0 RNET,3,7132,0 Average,2,5010,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $30 million in AVDL's case. RigNet Inc (NASDAQ:RNET) is the most popular stock in this table. On the other hand Provident Financial Holdings, Inc. (NASDAQ:PROV) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Avadel Pharmaceuticals plc (NASDAQ:AVDL) 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. Hedge funds were also right about betting on AVDL as the stock returned 52.6% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.