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Is Casa Therapeutics Inc (CARA) Going to Burn These Hedge Funds?

Reymerlyn Martin

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Casa Therapeutics Inc (NASDAQ:CARA) was in 11 hedge funds' portfolios at the end of the third quarter of 2018. CARA investors should be aware of an increase in activity from the world's largest hedge funds recently. There were 5 hedge funds in our database with CARA positions at the end of the previous quarter. Our calculations also showed that CARA isn't among the 30 most popular stocks among hedge funds.

At the moment there are plenty of indicators stock traders can use to analyze stocks. A pair of the less known indicators are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the market by a superb amount (see the details here).

MILLENNIUM MANAGEMENT

We're going to take a glance at the recent hedge fund action surrounding Casa Therapeutics Inc (NASDAQ:CARA).

What have hedge funds been doing with Casa Therapeutics Inc (NASDAQ:CARA)?

At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 120% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CARA at the beginning of this year. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

CARA_dec2018

More specifically, Nexthera Capital was the largest shareholder of Casa Therapeutics Inc (NASDAQ:CARA), with a stake worth $17.7 million reported as of the end of September. Trailing Nexthera Capital was Marshall Wace LLP, which amassed a stake valued at $10.8 million. Millennium Management, Opaleye Management, and DAFNA Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names were leading the bulls' herd. Opaleye Management, managed by James A. Silverman, initiated the biggest position in Casa Therapeutics Inc (NASDAQ:CARA). Opaleye Management had $3.1 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $1.1 million investment in the stock during the quarter. The following funds were also among the new CARA investors: Dmitry Balyasny's Balyasny Asset Management, John Overdeck and David Siegel's Two Sigma Advisors, and Noam Gottesman's GLG Partners.

Let's check out hedge fund activity in other stocks similar to Casa Therapeutics Inc (NASDAQ:CARA). We will take a look at CoBiz Financial Inc (NASDAQ:COBZ), Tutor Perini Corp (NYSE:TPC), Newpark Resources Inc (NYSE:NR), and Par Pacific Holdings, Inc. (NYSEMKT:PARR). This group of stocks' market valuations are closest to CARA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COBZ,14,118675,-4 TPC,7,5230,2 NR,14,56370,-2 PARR,17,144394,-4 Average,13,81167,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $46 million in CARA's case. Par Pacific Holdings, Inc. (NYSEMKT:PARR) is the most popular stock in this table. On the other hand Tutor Perini Corp (NYSE:TPC) is the least popular one with only 7 bullish hedge fund positions. Casa Therapeutics Inc (NASDAQ:CARA) 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. In this regard PARR might be a better candidate to consider a long position.

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

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