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Hedge Funds Have Never Been This Bullish On Mirati Therapeutics, Inc. (MRTX)

Asma UL Husna

Does Mirati Therapeutics, Inc. (NASDAQ:MRTX) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 28 hedge funds' portfolios at the end of the first quarter of 2019. MRTX investors should pay attention to an increase in support from the world's most elite money managers recently. There were 27 hedge funds in our database with MRTX holdings at the end of the previous quarter. Our calculations also showed that MRTX isn't among the 30 most popular stocks among hedge funds.

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.

Felix Baker - Baker Bros.

Let's go over the fresh hedge fund action surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX).

How have hedgies been trading Mirati Therapeutics, Inc. (NASDAQ:MRTX)?

At Q1's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRTX over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MRTX_june2019

More specifically, venBio Select Advisor was the largest shareholder of Mirati Therapeutics, Inc. (NASDAQ:MRTX), with a stake worth $283.1 million reported as of the end of March. Trailing venBio Select Advisor was Baker Bros. Advisors, which amassed a stake valued at $184.2 million. Farallon Capital, Perceptive Advisors, and Cormorant Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, specific money managers were breaking ground themselves. EcoR1 Capital, managed by Oleg Nodelman, created the most outsized call position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). EcoR1 Capital had $25.6 million invested in the company at the end of the quarter. Christopher James's Partner Fund Management also made a $8.8 million investment in the stock during the quarter. The following funds were also among the new MRTX investors: James A. Silverman's Opaleye Management, Israel Englander's Millennium Management, and Michael Castor's Sio Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Mirati Therapeutics, Inc. (NASDAQ:MRTX) but similarly valued. We will take a look at Genomic Health, Inc. (NASDAQ:GHDX), Quidel Corporation (NASDAQ:QDEL), Sunoco LP (NYSE:SUN), and Colony Capital Inc (NYSE:CLNY). This group of stocks' market valuations resemble MRTX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GHDX,25,1054605,1 QDEL,18,119938,2 SUN,7,20219,0 CLNY,23,380794,-3 Average,18.25,393889,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $951 million in MRTX's case. Genomic Health, Inc. (NASDAQ:GHDX) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Mirati Therapeutics, Inc. (NASDAQ:MRTX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MRTX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MRTX were disappointed as the stock returned -4.6% during the same period 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 13 of these stocks already outperformed the market in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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