In this article we will check out the progression of hedge fund sentiment towards Lipocine Inc (NASDAQ:LPCN) and determine whether it 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.
Is Lipocine Inc (NASDAQ:LPCN) a safe investment right now? Money managers are becoming less confident. The number of long hedge fund bets decreased by 1 lately. Our calculations also showed that LPCN 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_27480" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. 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. Now we're going to check out the key hedge fund action regarding Lipocine Inc (NASDAQ:LPCN).
How have hedgies been trading Lipocine Inc (NASDAQ:LPCN)?
At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LPCN over the last 18 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Lipocine Inc (NASDAQ:LPCN) was held by Renaissance Technologies, which reported holding $0.1 million worth of stock at the end of September. It was followed by Millennium Management with a $0 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.
Since Lipocine Inc (NASDAQ:LPCN) has experienced declining sentiment from the smart money, it's safe to say that there exists a select few hedge funds that slashed their entire stakes in the third quarter. At the top of the heap, Hal Mintz's Sabby Capital said goodbye to the largest stake of the 750 funds watched by Insider Monkey, valued at close to $0.1 million in stock, and Sander Gerber's Hudson Bay Capital Management was right behind this move, as the fund dumped about $0 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Lipocine Inc (NASDAQ:LPCN) but similarly valued. These stocks are SandRidge Permian Trust (NYSE:PER), Remark Holdings, Inc. (NASDAQ:MARK), Unique Fabricating Inc (NYSE:UFAB), and Qumu Corp (NASDAQ:QUMU). This group of stocks' market valuations are similar to LPCN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PER,1,6,0 MARK,2,909,-1 UFAB,2,1531,0 QUMU,3,4922,0 Average,2,1842,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $0 million in LPCN's case. Qumu Corp (NASDAQ:QUMU) is the most popular stock in this table. On the other hand SandRidge Permian Trust (NYSE:PER) is the least popular one with only 1 bullish hedge fund positions. Lipocine Inc (NASDAQ:LPCN) is not the most popular stock in this group but hedge fund interest is still above average. 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 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on LPCN as the stock returned 106% in Q2 (through May 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.