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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Ligand Pharmaceuticals Inc. (NASDAQ:LGND) shareholders have witnessed an increase in enthusiasm from smart money in recent months. LGND was in 23 hedge funds' portfolios at the end of December. There were 21 hedge funds in our database with LGND positions at the end of the previous quarter. Our calculations also showed that LGND isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Lee Ainslie of Maverick Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a peek at the fresh hedge fund action encompassing Ligand Pharmaceuticals Inc. (NASDAQ:LGND).
How are hedge funds trading Ligand Pharmaceuticals Inc. (NASDAQ:LGND)?
Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in LGND a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Ligand Pharmaceuticals Inc. (NASDAQ:LGND), which was worth $106.5 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $95.9 million worth of shares. Dorset Management, Polar Capital, and Two Sigma Advisors 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 Dorset Management allocated the biggest weight to Ligand Pharmaceuticals Inc. (NASDAQ:LGND), around 14.92% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, setting aside 2.93 percent of its 13F equity portfolio to LGND.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Maverick Capital, managed by Lee Ainslie, initiated the biggest position in Ligand Pharmaceuticals Inc. (NASDAQ:LGND). Maverick Capital had $1.7 million invested in the company at the end of the quarter. Ran Pang's Quantamental Technologies also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new LGND investors: Gavin Saitowitz and Cisco J. del Valle's Springbok Capital and Frederick DiSanto's Ancora Advisors.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ligand Pharmaceuticals Inc. (NASDAQ:LGND) but similarly valued. These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Heartland Financial USA Inc (NASDAQ:HTLF), Onto Innovation Inc. (NYSE:ONTO), and Comfort Systems USA, Inc. (NYSE:FIX). This group of stocks' market valuations are similar to LGND's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WABC,11,27634,0 HTLF,8,14951,-2 ONTO,14,167125,-4 FIX,24,137894,1 Average,14.25,86901,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $380 million in LGND's case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand Heartland Financial USA Inc (NASDAQ:HTLF) is the least popular one with only 8 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately LGND wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LGND were disappointed as the stock returned -25.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.