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Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Supernus Pharmaceuticals Inc (NASDAQ:SUPN) changed recently.
Supernus Pharmaceuticals Inc (NASDAQ:SUPN) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Instructure, Inc. (NYSE:INST), Akcea Therapeutics, Inc. (NASDAQ:AKCA), and Kronos Worldwide, Inc. (NYSE:KRO) to gather more data points. Our calculations also showed that SUPN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action surrounding Supernus Pharmaceuticals Inc (NASDAQ:SUPN).
How have hedgies been trading Supernus Pharmaceuticals Inc (NASDAQ:SUPN)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in SUPN a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Marshall Wace held the most valuable stake in Supernus Pharmaceuticals Inc (NASDAQ:SUPN), which was worth $17.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $15.4 million worth of shares. Winton Capital Management, Millennium Management, and Citadel Investment Group 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 Aequim Alternative Investments allocated the biggest weight to Supernus Pharmaceuticals Inc (NASDAQ:SUPN), around 0.64% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.44 percent of its 13F equity portfolio to SUPN.
Because Supernus Pharmaceuticals Inc (NASDAQ:SUPN) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there were a few hedgies that decided to sell off their positions entirely heading into Q4. Intriguingly, Nick Niell's Arrowgrass Capital Partners said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $4.5 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also cut its stock, about $2.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Supernus Pharmaceuticals Inc (NASDAQ:SUPN) but similarly valued. We will take a look at Instructure, Inc. (NYSE:INST), Akcea Therapeutics, Inc. (NASDAQ:AKCA), Kronos Worldwide, Inc. (NYSE:KRO), and Sonos, Inc. (NASDAQ:SONO). This group of stocks' market valuations are similar to SUPN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INST,17,522274,-4 AKCA,4,4811,-4 KRO,9,32162,-3 SONO,27,100751,6 Average,14.25,165000,-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 $165 million. That figure was $88 million in SUPN's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Akcea Therapeutics, Inc. (NASDAQ:AKCA) is the least popular one with only 4 bullish hedge fund positions. Supernus Pharmaceuticals Inc (NASDAQ:SUPN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SUPN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SUPN were disappointed as the stock returned -14.9% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.