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Hedge Funds Have Never Been More Bullish On Aurinia Pharmaceuticals Inc (AUPH)

Nina Todic

Is Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) the right investment to pursue these days? Hedge funds are becoming more confident. The number of bullish hedge fund positions moved up by 2 recently. Our calculations also showed that AUPH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AUPH was in 13 hedge funds' portfolios at the end of September. There were 11 hedge funds in our database with AUPH holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_341400" align="aligncenter" width="600"] Samuel Isaly of OrbiMed Advisors[/caption]

Samuel Isaly Orbimed Advisors
Samuel Isaly Orbimed Advisors

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 check out the recent hedge fund action surrounding Aurinia Pharmaceuticals Inc (NASDAQ:AUPH).

What does smart money think about Aurinia Pharmaceuticals Inc (NASDAQ:AUPH)?

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AUPH over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Among these funds, Vivo Capital held the most valuable stake in Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), which was worth $25.4 million at the end of the third quarter. On the second spot was OrbiMed Advisors which amassed $18.9 million worth of shares. Polar Capital, Consonance Capital Management, and Healthcor Management 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 Vivo Capital allocated the biggest weight to Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), around 2.89% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, setting aside 1.35 percent of its 13F equity portfolio to AUPH.

As aggregate interest increased, specific money managers have jumped into Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) headfirst. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, assembled the largest position in Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). Healthcor Management had $4.4 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also made a $1 million investment in the stock during the quarter. The only other fund with a brand new AUPH position is Michael Gelband's ExodusPoint Capital.

Let's now take a look at hedge fund activity in other stocks similar to Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). These stocks are Franklin Covey Co. (NYSE:FC), Ducommun Incorporated (NYSE:DCO), Century Bancorp, Inc. (NASDAQ:CNBKA), and Digimarc Corporation (NASDAQ:DMRC). This group of stocks' market valuations resemble AUPH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FC,10,21669,3 DCO,12,63714,1 CNBKA,5,17664,2 DMRC,6,38801,0 Average,8.25,35462,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $88 million in AUPH's case. Ducommun Incorporated (NYSE:DCO) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) is more popular among hedge funds. 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. Hedge funds were also right about betting on AUPH as the stock returned 48.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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