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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Reata Pharmaceuticals, Inc. (NASDAQ:RETA) investors should be aware of an increase in activity from the world's largest hedge funds lately. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with RETA positions at the end of the first quarter. Our calculations also showed that RETA isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Stanley Druckenmiller of Duquesne Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's view the recent hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
How are hedge funds trading Reata Pharmaceuticals, Inc. (NASDAQ:RETA)?
At Q2's end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in RETA a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Reata Pharmaceuticals, Inc. (NASDAQ:RETA) was held by Duquesne Capital, which reported holding $83.1 million worth of stock at the end of June. It was followed by Cormorant Asset Management with a $62.4 million position. Other investors bullish on the company included Millennium Management, Deerfield Management, and Logos Capital. In terms of the portfolio weights assigned to each position Corriente Advisors allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 14.91% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 6.24 percent of its 13F equity portfolio to RETA.
Now, key money managers have been driving this bullishness. Sphera Global Healthcare Fund, managed by Doron Breen and Mori Arkin, initiated the most valuable position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA). Sphera Global Healthcare Fund had $12.8 million invested in the company at the end of the quarter. Blair Baker's Precept Capital Management also initiated a $4.8 million position during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Benjamin A. Smith's Laurion Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) but similarly valued. These stocks are Planet Fitness Inc (NYSE:PLNT), CubeSmart (NYSE:CUBE), Enel Chile S.A. (NYSE:ENIC), Yamana Gold Inc. (NYSE:AUY), Vedanta Ltd (NYSE:VEDL), Hess Midstream LP (NYSE:HESM), and Tech Data Corp (NASDAQ:TECD). This group of stocks' market values match RETA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLNT,44,1253736,0 CUBE,24,211307,6 ENIC,5,15818,-3 AUY,18,407399,4 VEDL,9,46209,-2 HESM,6,11545,1 TECD,17,307359,-22 Average,17.6,321910,-2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $440 million in RETA's case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RETA is 73.2. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately RETA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RETA were disappointed as the stock returned -25.2% since the end of June (through 10/30) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.