Is Principia Biopharma Inc. (NASDAQ:PRNB) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing 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 have 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 Principia Biopharma Inc. (NASDAQ:PRNB) a healthy stock for your portfolio? Money managers are getting less optimistic. The number of long hedge fund bets fell by 3 lately. Our calculations also showed that PRNB isn't among the 30 most popular stocks among hedge funds. PRNB was in 12 hedge funds' portfolios at the end of December. There were 15 hedge funds in our database with PRNB positions at the end of the previous quarter.
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 32 percentage points since May 2014 through March 12, 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.
We're going to analyze the fresh hedge fund action encompassing Principia Biopharma Inc. (NASDAQ:PRNB).
What does the smart money think about Principia Biopharma Inc. (NASDAQ:PRNB)?
Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PRNB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, OrbiMed Advisors was the largest shareholder of Principia Biopharma Inc. (NASDAQ:PRNB), with a stake worth $71.4 million reported as of the end of December. Trailing OrbiMed Advisors was Baker Bros. Advisors, which amassed a stake valued at $49 million. Cormorant Asset Management, Adage Capital Management, and Samsara BioCapital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Principia Biopharma Inc. (NASDAQ:PRNB) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few funds that elected to cut their positions entirely last quarter. It's worth mentioning that Anand Parekh's Alyeska Investment Group dumped the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $2.9 million in stock. Behzad Aghazadeh's fund, venBio Select Advisor, also dropped its stock, about $2.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Principia Biopharma Inc. (NASDAQ:PRNB) but similarly valued. These stocks are Cohu, Inc. (NASDAQ:COHU), Rudolph Technologies Inc (NYSE:RTEC), Heska Corp (NASDAQ:HSKA), and ORBCOMM Inc (NASDAQ:ORBC). This group of stocks' market values resemble PRNB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COHU,9,33677,-6 RTEC,14,77992,-2 HSKA,12,38485,2 ORBC,12,99614,-3 Average,11.75,62442,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $213 million in PRNB's case. Rudolph Technologies Inc (NYSE:RTEC) is the most popular stock in this table. On the other hand Cohu, Inc. (NASDAQ:COHU) is the least popular one with only 9 bullish hedge fund positions. Principia Biopharma Inc. (NASDAQ:PRNB) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PRNB wasn't nearly as popular as these 15 stock and hedge funds that were betting on PRNB were disappointed as the stock returned 9.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.