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Were Hedge Funds Right About Piling Into Mirati Therapeutics (MRTX)?

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Mirati Therapeutics, Inc. (NASDAQ:MRTX) based on those filings.

Mirati Therapeutics, Inc. (NASDAQ:MRTX) shareholders have witnessed an increase in enthusiasm from smart money of late. Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 56 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MRTX isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Joseph Edelman of Perceptive Advisors
Joseph Edelman of Perceptive Advisors

Joseph Edelman of Perceptive Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's take a look at the latest hedge fund action regarding Mirati Therapeutics, Inc. (NASDAQ:MRTX).

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

At fourth quarter's end, a total of 56 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 47% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MRTX over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Avoro Capital Advisors (venBio Select Advisor) held the most valuable stake in Mirati Therapeutics, Inc. (NASDAQ:MRTX), which was worth $996.1 million at the end of the fourth quarter. On the second spot was Perceptive Advisors which amassed $811.2 million worth of shares. Baker Bros. Advisors, OrbiMed Advisors, and Farallon Capital 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 Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 17.15% of its 13F portfolio. Darwin Global Management is also relatively very bullish on the stock, designating 15.99 percent of its 13F equity portfolio to MRTX.

Now, key hedge funds were breaking ground themselves. Consonance Capital Management, managed by Mitchell Blutt, assembled the most outsized position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). Consonance Capital Management had $72.5 million invested in the company at the end of the quarter. Abhishek Trehan's Darwin Global Management also made a $57.3 million investment in the stock during the quarter. The following funds were also among the new MRTX investors: Steve Cohen's Point72 Asset Management, Renaissance Technologies, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Mirati Therapeutics, Inc. (NASDAQ:MRTX) but similarly valued. We will take a look at Bentley Systems, Incorporated (NASDAQ:BSY), Centrais Elétricas Brasileiras S.A. - Eletrobrás (NYSE:EBR), CRISPR Therapeutics AG (NASDAQ:CRSP), XPO Logistics Inc (NYSE:XPO), F5 Networks, Inc. (NASDAQ:FFIV), AbCellera Biologics Inc. (NASDAQ:ABCL), and Universal Display Corporation (NASDAQ:OLED). This group of stocks' market caps match MRTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BSY,19,82011,0 EBR,6,4239,2 CRSP,34,2010222,8 XPO,40,2981368,1 FFIV,34,1131637,-2 ABCL,25,2316582,25 OLED,24,93963,4 Average,26,1231432,5.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1231 million. That figure was $3610 million in MRTX's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Centrais Elétricas Brasileiras S.A. - Eletrobrás (NYSE:EBR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Mirati Therapeutics, Inc. (NASDAQ:MRTX) is more popular among hedge funds. Our overall hedge fund sentiment score for MRTX is 90. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately MRTX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MRTX were disappointed as the stock returned -24.3% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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