In this article you are going to find out whether hedge funds think Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) is a good investment 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.
Is Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) undervalued? Money managers are taking an optimistic view. The number of bullish hedge fund bets moved up by 1 recently. Our calculations also showed that CPRX 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.
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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_364880" align="aligncenter" width="399"] Nathaniel August of Mangrove Partners[/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. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the 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 gander at the new hedge fund action encompassing Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX).
How are hedge funds trading Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in CPRX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Armistice Capital held the most valuable stake in Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX), which was worth $20.8 million at the end of the third quarter. On the second spot was Mangrove Partners which amassed $16.8 million worth of shares. Pura Vida Investments, AQR Capital Management, and Marshall Wace LLP 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 Mangrove Partners allocated the biggest weight to Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX), around 2.31% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 1.42 percent of its 13F equity portfolio to CPRX.
Consequently, specific money managers have been driving this bullishness. Pura Vida Investments, managed by Efrem Kamen, established the most valuable position in Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX). Pura Vida Investments had $5.6 million invested in the company at the end of the quarter. James A. Silverman's Opaleye Management also initiated a $4 million position during the quarter. The only other fund with a new position in the stock is Bruce Kovner's Caxton Associates LP.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) but similarly valued. These stocks are United Insurance Holdings Corp. (NASDAQ:UIHC), The Pennant Group, Inc. (NASDAQ:PNTG), Agilysys, Inc. (NASDAQ:AGYS), and City Office REIT Inc (NYSE:CIO). All of these stocks' market caps match CPRX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UIHC,9,4573,-3 PNTG,8,16893,2 AGYS,14,85802,-2 CIO,15,34627,2 Average,11.5,35474,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $80 million in CPRX's case. City Office REIT Inc (NYSE:CIO) is the most popular stock in this table. On the other hand The Pennant Group, Inc. (NASDAQ:PNTG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) is more popular among hedge funds. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. Unfortunately CPRX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CPRX were disappointed as the stock returned 17.1% during the second quarter (through June 17th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.