We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let's see whether Pacira Pharmaceuticals Inc (NASDAQ:PCRX) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Pacira Pharmaceuticals Inc (NASDAQ:PCRX) the right pick for your portfolio? Hedge funds are becoming less hopeful. The number of long hedge fund bets fell by 3 lately. Our calculations also showed that PCRX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 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 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.
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John Paulson of Paulson & Co[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the recent hedge fund action regarding Pacira Pharmaceuticals Inc (NASDAQ:PCRX).
How are hedge funds trading Pacira Pharmaceuticals Inc (NASDAQ:PCRX)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PCRX over the last 18 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Pacira Pharmaceuticals Inc (NASDAQ:PCRX), which was worth $81.4 million at the end of the third quarter. On the second spot was Paulson & Co which amassed $77.8 million worth of shares. Rock Springs Capital Management, D E Shaw, and Healthcor Management LP 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 Tamarack Capital Management allocated the biggest weight to Pacira Pharmaceuticals Inc (NASDAQ:PCRX), around 6.35% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 1.68 percent of its 13F equity portfolio to PCRX.
Judging by the fact that Pacira Pharmaceuticals Inc (NASDAQ:PCRX) has witnessed falling interest from hedge fund managers, it's easy to see that there exists a select few money managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Behzad Aghazadeh's venBio Select Advisor sold off the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $60.9 million in stock, and Ken Greenberg and David Kim's Ghost Tree Capital was right behind this move, as the fund said goodbye to about $9.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Pacira Pharmaceuticals Inc (NASDAQ:PCRX) but similarly valued. We will take a look at Badger Meter, Inc. (NYSE:BMI), Vicor Corp (NASDAQ:VICR), Adtalem Global Education Inc. (NYSE:ATGE), and Fastly, Inc. (NYSE:FSLY). This group of stocks' market values resemble PCRX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMI,20,178333,2 VICR,12,38689,0 ATGE,20,277855,-6 FSLY,19,164296,3 Average,17.75,164793,-0.25 [/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 $165 million. That figure was $408 million in PCRX's case. Badger Meter, Inc. (NYSE:BMI) is the most popular stock in this table. On the other hand Vicor Corp (NASDAQ:VICR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Pacira Pharmaceuticals Inc (NASDAQ:PCRX) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately PCRX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PCRX were disappointed as the stock returned -29.4% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.