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Did The Smart Money Play Arena Pharmaceuticals, Inc. (ARNA) Correctly?

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The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Is Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) worth your attention right now? Investors who are in the know were taking a bullish view. The number of bullish hedge fund positions advanced by 1 in recent months. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was in 35 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 43. Our calculations also showed that ARNA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a glance at the latest hedge fund action surrounding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).

Do Hedge Funds Think ARNA Is A Good Stock To Buy Now?

At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the second quarter of 2021. On the other hand, there were a total of 43 hedge funds with a bullish position in ARNA a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is ARNA A Good Stock To Buy?
Is ARNA A Good Stock To Buy?

More specifically, Avoro Capital Advisors (venBio Select Advisor) was the largest shareholder of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), with a stake worth $204 million reported as of the end of September. Trailing Avoro Capital Advisors (venBio Select Advisor) was Alkeon Capital Management, which amassed a stake valued at $103.7 million. Farallon Capital, Great Point Partners, and Logos 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 Great Point Partners allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 7.36% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, earmarking 5.14 percent of its 13F equity portfolio to ARNA.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Logos Capital, managed by Arsani William, created the largest position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Logos Capital had $30.4 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also made a $30.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Efrem Kamen's Pura Vida Investments, Bhagwan Jay Rao's Integral Health Asset Management, and Louis Bacon's Moore Global Investments.

Let's now take a look at hedge fund activity in other stocks similar to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). We will take a look at BRP Group, Inc. (NASDAQ:BRP), Ameris Bancorp (NASDAQ:ABCB), Karuna Therapeutics, Inc. (NASDAQ:KRTX), Walker & Dunlop Inc. (NYSE:WD), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), Oscar Health, Inc. (NYSE:OSCR), and ACI Worldwide Inc (NASDAQ:ACIW). All of these stocks' market caps match ARNA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BRP,21,194072,8 ABCB,15,36045,0 KRTX,19,398328,1 WD,15,151415,4 KLIC,28,322233,-1 OSCR,17,947585,1 ACIW,28,570658,2 Average,20.4,374334,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $620 million in ARNA's case. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) is the most popular stock in this table. On the other hand Ameris Bancorp (NASDAQ:ABCB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is more popular among hedge funds. Our overall hedge fund sentiment score for ARNA is 80.4. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on ARNA as the stock returned 54.5% since the end of September (through 1/31) 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.