There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze La Jolla Pharmaceutical Company (NASDAQ:LJPC).
La Jolla Pharmaceutical Company (NASDAQ:LJPC) was in 13 hedge funds' portfolios at the end of the third quarter of 2018. LJPC has experienced an increase in enthusiasm from smart money recently. There were 11 hedge funds in our database with LJPC positions at the end of the previous quarter. Our calculations also showed that ljpc isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's view the key hedge fund action regarding La Jolla Pharmaceutical Company (NASDAQ:LJPC).
What have hedge funds been doing with La Jolla Pharmaceutical Company (NASDAQ:LJPC)?
Heading into the fourth quarter of 2018, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in LJPC heading into this year. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in La Jolla Pharmaceutical Company (NASDAQ:LJPC) was held by Perceptive Advisors, which reported holding $86.8 million worth of stock at the end of September. It was followed by Tang Capital Management with a $83.3 million position. Other investors bullish on the company included Scopia Capital, Broadfin Capital, and Sectoral Asset Management.
Now, key hedge funds have jumped into La Jolla Pharmaceutical Company (NASDAQ:LJPC) headfirst. Point72 Asset Management, managed by Steve Cohen, created the largest position in La Jolla Pharmaceutical Company (NASDAQ:LJPC). Point72 Asset Management had $21 million invested in the company at the end of the quarter. Kevin Kotler's Broadfin Capital also made a $2 million investment in the stock during the quarter. The other funds with brand new LJPC positions are Daniel S. Och's OZ Management and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's go over hedge fund activity in other stocks similar to La Jolla Pharmaceutical Company (NASDAQ:LJPC). We will take a look at Ocwen Financial Corporation (NYSE:OCN), Sinovac Biotech Ltd. (NASDAQ:SVA), Kimbell Royalty Partners, LP (NYSE:KRP), and PennyMac Financial Services Inc (NYSE:PFSI). This group of stocks' market values resemble LJPC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCN,17,88977,1 SVA,3,40527,-1 KRP,9,19823,7 PFSI,16,174140,2 Average,11.25,80867,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $331 million in LJPC's case. Ocwen Financial Corporation (NYSE:OCN) is the most popular stock in this table. On the other hand Sinovac Biotech Ltd. (NASDAQ:SVA) is the least popular one with only 3 bullish hedge fund positions. La Jolla Pharmaceutical Company (NASDAQ:LJPC) 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. In this regard OCN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.