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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ligand Pharmaceuticals Inc. (NASDAQ:LGND) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Ligand Pharmaceuticals Inc. (NASDAQ:LGND) has seen a decrease in hedge fund interest in recent months. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 28. There were 27 hedge funds in our database with LGND holdings at the end of March. Our calculations also showed that LGND isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let's take a look at the latest hedge fund action regarding Ligand Pharmaceuticals Inc. (NASDAQ:LGND).
Hedge fund activity in Ligand Pharmaceuticals Inc. (NASDAQ:LGND)
At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in LGND a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cardinal Capital held the most valuable stake in Ligand Pharmaceuticals Inc. (NASDAQ:LGND), which was worth $97.1 million at the end of the third quarter. On the second spot was Dorset Management which amassed $30.5 million worth of shares. Two Sigma Advisors, D E Shaw, and Arrowstreet 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 Stonepine Capital allocated the biggest weight to Ligand Pharmaceuticals Inc. (NASDAQ:LGND), around 20.02% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, earmarking 16.69 percent of its 13F equity portfolio to LGND.
Because Ligand Pharmaceuticals Inc. (NASDAQ:LGND) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few funds that decided to sell off their positions entirely by the end of the second quarter. At the top of the heap, Ken Griffin's Citadel Investment Group cut the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $22.6 million in stock. Michael Rockefeller and KarláKroeker's fund, Woodline Partners, also sold off its stock, about $1.5 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to Ligand Pharmaceuticals Inc. (NASDAQ:LGND). These stocks are Federal Signal Corporation (NYSE:FSS), Graham Holdings Co (NYSE:GHC), CommVault Systems, Inc. (NASDAQ:CVLT), Pebblebrook Hotel Trust (NYSE:PEB), KAR Auction Services Inc (NYSE:KAR), Allegiant Travel Company (NASDAQ:ALGT), and The Simply Good Foods Company (NASDAQ:SMPL). This group of stocks' market valuations are closest to LGND's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSS,12,39674,-3 GHC,22,278796,1 CVLT,22,396917,4 PEB,13,137590,3 KAR,30,302345,9 ALGT,23,334831,4 SMPL,26,138560,7 Average,21.1,232673,3.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $267 million in LGND's case. KAR Auction Services Inc (NYSE:KAR) is the most popular stock in this table. On the other hand Federal Signal Corporation (NYSE:FSS) is the least popular one with only 12 bullish hedge fund positions. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LGND is 51.3. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately LGND wasn't nearly as popular as these 10 stocks and hedge funds that were betting on LGND were disappointed as the stock returned -14.8% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.