Is ArQule, Inc. (NASDAQ:ARQL) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
ArQule, Inc. (NASDAQ:ARQL) was in 25 hedge funds' portfolios at the end of the second quarter of 2019. ARQL has experienced an increase in activity from the world's largest hedge funds of late. There were 15 hedge funds in our database with ARQL holdings at the end of the previous quarter. Our calculations also showed that ARQL isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the fresh hedge fund action surrounding ArQule, Inc. (NASDAQ:ARQL).
What have hedge funds been doing with ArQule, Inc. (NASDAQ:ARQL)?
At Q2's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in ARQL a year ago. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in ArQule, Inc. (NASDAQ:ARQL), which was worth $114.5 million at the end of the second quarter. On the second spot was Millennium Management which amassed $83.6 million worth of shares. Moreover, Alkeon Capital Management, Point72 Asset Management, and EcoR1 Capital were also bullish on ArQule, Inc. (NASDAQ:ARQL), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in ArQule, Inc. (NASDAQ:ARQL). Point72 Asset Management had $29.9 million invested in the company at the end of the quarter. Oleg Nodelman's EcoR1 Capital also initiated a $14.3 million position during the quarter. The following funds were also among the new ARQL investors: Samuel Isaly's OrbiMed Advisors, Mark Kingdon's Kingdon Capital, and David Rosen's Rubric Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as ArQule, Inc. (NASDAQ:ARQL) but similarly valued. These stocks are City Holding Company (NASDAQ:CHCO), Vicor Corporation (NASDAQ:VICR), Avaya Holdings Corp. (NYSE:AVYA), and National HealthCare Corporation (NYSE:NHC). All of these stocks' market caps are closest to ARQL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHCO,11,19024,3 VICR,13,20339,3 AVYA,42,309525,2 NHC,9,58048,0 Average,18.75,101734,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $357 million in ARQL's case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand National HealthCare Corporation (NYSE:NHC) is the least popular one with only 9 bullish hedge fund positions. ArQule, Inc. (NASDAQ:ARQL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ARQL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ARQL were disappointed as the stock returned -34.9% during the third quarter 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.