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Is HRTX A Good Stock To Buy According To Hedge Funds?

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Reymerlyn Martin
·6 min read
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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Heron Therapeutics Inc (NASDAQ:HRTX) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is HRTX a good stock to buy now? Heron Therapeutics Inc (NASDAQ:HRTX) investors should be aware of a decrease in enthusiasm from smart money lately. Heron Therapeutics Inc (NASDAQ:HRTX) was in 17 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. There were 21 hedge funds in our database with HRTX holdings at the end of June. Our calculations also showed that HRTX isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Felix Baker - Baker Bros.
Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a look at the key hedge fund action regarding Heron Therapeutics Inc (NASDAQ:HRTX).

Do Hedge Funds Think HRTX Is A Good Stock To Buy Now?

At the end of September, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in HRTX a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in Heron Therapeutics Inc (NASDAQ:HRTX) was held by Baker Bros. Advisors, which reported holding $88.8 million worth of stock at the end of September. It was followed by Tang Capital Management with a $42.9 million position. Other investors bullish on the company included D E Shaw, Consonance Capital Management, and Partner Fund Management. In terms of the portfolio weights assigned to each position Tang Capital Management allocated the biggest weight to Heron Therapeutics Inc (NASDAQ:HRTX), around 7.77% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, earmarking 3.62 percent of its 13F equity portfolio to HRTX.

Because Heron Therapeutics Inc (NASDAQ:HRTX) has experienced declining sentiment from the smart money, logic holds that there exists a select few money managers that slashed their entire stakes by the end of the third quarter. At the top of the heap, Brandon Haley's Holocene Advisors sold off the largest investment of all the hedgies watched by Insider Monkey, valued at about $5.9 million in stock. Noam Gottesman's fund, GLG Partners, also sold off its stock, about $4.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Heron Therapeutics Inc (NASDAQ:HRTX) but similarly valued. These stocks are World Fuel Services Corporation (NYSE:INT), Compugen Ltd. (NASDAQ:CGEN), Terex Corporation (NYSE:TEX), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), HNI Corp (NYSE:HNI), Bloomin' Brands Inc (NASDAQ:BLMN), and Park National Corporation (NYSE:PRK). This group of stocks' market values resemble HRTX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INT,16,79951,-2 CGEN,14,76267,5 TEX,18,212256,-1 DRNA,31,183699,-4 HNI,7,31809,-3 BLMN,30,284019,7 PRK,2,1867,-10 Average,16.9,124267,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $275 million in HRTX's case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 2 bullish hedge fund positions. Heron Therapeutics Inc (NASDAQ:HRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HRTX is 43.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on HRTX as the stock returned 21.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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