Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Nektar Therapeutics (NASDAQ:NKTR) has seen an increase in support from the world's most elite money managers recently. Our calculations also showed that NKTR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the key hedge fund action surrounding Nektar Therapeutics (NASDAQ:NKTR).
Hedge fund activity in Nektar Therapeutics (NASDAQ:NKTR)
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in NKTR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Nektar Therapeutics (NASDAQ:NKTR) was held by Camber Capital Management, which reported holding $89 million worth of stock at the end of March. It was followed by Bridger Management with a $38.6 million position. Other investors bullish on the company included AQR Capital Management, Cormorant Asset Management, and D E Shaw.
Consequently, key hedge funds were breaking ground themselves. PDT Partners, managed by Peter Muller, assembled the most valuable position in Nektar Therapeutics (NASDAQ:NKTR). PDT Partners had $8 million invested in the company at the end of the quarter. John Osterweis's Osterweis Capital Management also made a $7.8 million investment in the stock during the quarter. The other funds with brand new NKTR positions are Michael Platt and William Reeves's BlueCrest Capital Mgmt., Roger Ibbotson's Zebra Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Nektar Therapeutics (NASDAQ:NKTR) but similarly valued. These stocks are Owens Corning (NYSE:OC), Dr. Reddy's Laboratories Limited (NYSE:RDY), Gentex Corporation (NASDAQ:GNTX), and Phillips 66 Partners LP (NYSE:PSXP). All of these stocks' market caps are closest to NKTR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OC,34,1483283,7 RDY,11,80625,0 GNTX,23,388264,0 PSXP,3,9904,-1 Average,17.75,490519,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $228 million in NKTR's case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 3 bullish hedge fund positions. Nektar Therapeutics (NASDAQ:NKTR) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NKTR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NKTR were disappointed as the stock returned -48.8% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.