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Hedge Funds Nibbling On Eton Pharmaceuticals, Inc. (ETON)

Abigail Fisher

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Eton Pharmaceutcials, Inc. (NASDAQ:ETON).

Eton Pharmaceutcials, Inc. (NASDAQ:ETON) was in 4 hedge funds' portfolios at the end of the first quarter of 2020. ETON investors should be aware of an increase in support from the world's most elite money managers in recent months. There were 2 hedge funds in our database with ETON holdings at the end of the previous quarter. Our calculations also showed that ETON 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 51 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.

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Abrams Bison Investor Letters

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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 view the recent hedge fund action regarding Eton Pharmaceutcials, Inc. (NASDAQ:ETON).

What does smart money think about Eton Pharmaceutcials, Inc. (NASDAQ:ETON)?

At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ETON over the last 18 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, James A. Silverman's Opaleye Management has the largest position in Eton Pharmaceutcials, Inc. (NASDAQ:ETON), worth close to $14.9 million, amounting to 4% of its total 13F portfolio. On Opaleye Management's heels is Diametric Capital, led by Nick Thakore, holding a $1.9 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to Eton Pharmaceutcials, Inc. (NASDAQ:ETON), around 3.95% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, designating 2.25 percent of its 13F equity portfolio to ETON.

As aggregate interest increased, key hedge funds have jumped into Eton Pharmaceutcials, Inc. (NASDAQ:ETON) headfirst. Diametric Capital, managed by Nick Thakore, initiated the most outsized position in Eton Pharmaceutcials, Inc. (NASDAQ:ETON). Diametric Capital had $1.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.1 million position during the quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Eton Pharmaceutcials, Inc. (NASDAQ:ETON) but similarly valued. These stocks are Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), Inspired Entertainment, Inc. (NASDAQ:INSE), and Potbelly Corp (NASDAQ:PBPB). This group of stocks' market caps match ETON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLMD,10,18167,0 XERS,10,21986,4 INSE,6,16663,0 PBPB,7,10578,-4 Average,8.25,16849,0 [/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 $17 million. That figure was $18 million in ETON's case. Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) is the most popular stock in this table. On the other hand Inspired Entertainment, Inc. (NASDAQ:INSE) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Eton Pharmaceutcials, Inc. (NASDAQ:ETON) is even less popular than INSE. Hedge funds dodged a bullet by taking a bearish stance towards ETON. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately ETON wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ETON investors were disappointed as the stock returned 12.2% during the second quarter (through the end of May) 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 so far in 2020.

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

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