Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Palatin Technologies, Inc. (NYSE:PTN).
Palatin Technologies, Inc. (NYSE:PTN) investors should pay attention to an increase in hedge fund sentiment recently. Our calculations also showed that PTN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_261247" align="alignnone" width="600"] Kevin Kotler of Broadfin Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a glance at the key hedge fund action encompassing Palatin Technologies, Inc. (NYSE:PTN).
What have hedge funds been doing with Palatin Technologies, Inc. (NYSE:PTN)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in PTN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Broadfin Capital was the largest shareholder of Palatin Technologies, Inc. (NYSE:PTN), with a stake worth $1 million reported as of the end of September. Trailing Broadfin Capital was Winton Capital Management, which amassed a stake valued at $0.8 million. Arrowstreet Capital, Citadel Investment Group, and McKinley Capital Management 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 Broadfin Capital allocated the biggest weight to Palatin Technologies, Inc. (NYSE:PTN), around 0.18% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to PTN.
As industrywide interest jumped, some big names were breaking ground themselves. Broadfin Capital, managed by Kevin Kotler, created the biggest position in Palatin Technologies, Inc. (NYSE:PTN). Broadfin Capital had $1 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.8 million investment in the stock during the quarter. The only other fund with a new position in the stock is Andre F. Perold's HighVista Strategies.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Palatin Technologies, Inc. (NYSE:PTN) but similarly valued. We will take a look at American Renal Associates Holdings, Inc (NYSE:ARA), OptimizeRx Corporation (NASDAQ:OPRX), Castlight Health Inc (NYSE:CSLT), and Alexco Resource Corp. (NYSE:AXU). This group of stocks' market caps match PTN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARA,6,118306,1 OPRX,10,33253,2 CSLT,19,21185,3 AXU,3,3146,-2 Average,9.5,43973,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $2 million in PTN's case. Castlight Health Inc (NYSE:CSLT) is the most popular stock in this table. On the other hand Alexco Resource Corp. (NYSE:AXU) is the least popular one with only 3 bullish hedge fund positions. Palatin Technologies, Inc. (NYSE:PTN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PTN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PTN investors were disappointed as the stock returned -8.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.