How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Pacira Biosciences Inc (NASDAQ:PCRX) and determine whether hedge funds had an edge regarding this stock.
Pacira Biosciences Inc (NASDAQ:PCRX) was in 26 hedge funds' portfolios at the end of the first quarter of 2020. PCRX shareholders have witnessed a decrease in hedge fund interest in recent months. There were 28 hedge funds in our database with PCRX positions at the end of the previous quarter. Our calculations also showed that PCRX isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a lot of methods stock market investors can use to value publicly traded companies. A pair of the most useful methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best investment managers can outclass their index-focused peers by a solid margin (see the details here).
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John Paulson of Paulson & Co[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's go over the new hedge fund action surrounding Pacira Biosciences Inc (NASDAQ:PCRX).
What does smart money think about Pacira Biosciences Inc (NASDAQ:PCRX)?
Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PCRX over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Pacira Biosciences Inc (NASDAQ:PCRX), which was worth $82.8 million at the end of the third quarter. On the second spot was Paulson & Co which amassed $57.6 million worth of shares. Deerfield Management, D E Shaw, and Rock Springs Capital Management 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 Tamarack Capital Management allocated the biggest weight to Pacira Biosciences Inc (NASDAQ:PCRX), around 6.98% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, dishing out 2.2 percent of its 13F equity portfolio to PCRX.
Seeing as Pacira Biosciences Inc (NASDAQ:PCRX) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of funds who sold off their full holdings last quarter. Intriguingly, Tom Sandell's Sandell Asset Management cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $6.3 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dropped about $1.4 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Pacira Biosciences Inc (NASDAQ:PCRX) but similarly valued. These stocks are Alexander's, Inc. (NYSE:ALX), Chesapeake Utilities Corporation (NYSE:CPK), KEMET Corporation (NYSE:KEM), and Urban Outfitters, Inc. (NASDAQ:URBN). This group of stocks' market valuations are closest to PCRX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALX,8,110151,-5 CPK,7,25946,-1 KEM,18,230546,-3 URBN,23,98855,-11 Average,14,116375,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $369 million in PCRX's case. Urban Outfitters, Inc. (NASDAQ:URBN) is the most popular stock in this table. On the other hand Chesapeake Utilities Corporation (NYSE:CPK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Pacira Biosciences Inc (NASDAQ:PCRX) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on PCRX as the stock returned 56.5% in Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.