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Is Xenon Pharmaceuticals Inc (XENE) A Good Stock To Buy?

Nina Todic

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Xenon Pharmaceuticals Inc (NASDAQ:XENE) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Xenon Pharmaceuticals Inc (NASDAQ:XENE) a great investment right now? Hedge funds are reducing their bets on the stock. The number of long hedge fund bets were cut by 2 lately. Our calculations also showed that XENE 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Today there are dozens of gauges market participants have at their disposal to analyze stocks. Some of the less utilized gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top fund managers can outperform the S&P 500 by a significant margin (see the details here).

[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]

Phill Gross of Adage Capital Management
Phill Gross of Adage Capital Management

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we're going to take a look at the key hedge fund action surrounding Xenon Pharmaceuticals Inc (NASDAQ:XENE).

Hedge fund activity in Xenon Pharmaceuticals Inc (NASDAQ:XENE)

At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XENE over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with XENE Positions
No of Hedge Funds with XENE Positions

The largest stake in Xenon Pharmaceuticals Inc (NASDAQ:XENE) was held by venBio Select Advisor, which reported holding $23.7 million worth of stock at the end of March. It was followed by Biotechnology Value Fund / BVF Inc with a $17.2 million position. Other investors bullish on the company included Vivo Capital, Adage Capital Management, and Aquilo Capital Management.

Seeing as Xenon Pharmaceuticals Inc (NASDAQ:XENE) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there were a few fund managers who sold off their full holdings in the second quarter. Intriguingly, Wilbur Ross's Invesco Private Capital (WL Ross) sold off the largest position of the 750 funds tracked by Insider Monkey, totaling an estimated $0.8 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Xenon Pharmaceuticals Inc (NASDAQ:XENE) but similarly valued. These stocks are National Bankshares Inc. (NASDAQ:NKSH), Ames National Corporation (NASDAQ:ATLO), Northwest Pipe Company (NASDAQ:NWPX), and Aratana Therapeutics Inc (NASDAQ:PETX). This group of stocks' market caps are closest to XENE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NKSH,3,19391,0 ATLO,3,19037,0 NWPX,10,36431,0 PETX,16,94993,5 Average,8,42463,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $113 million in XENE's case. Aratana Therapeutics Inc (NASDAQ:PETX) is the most popular stock in this table. On the other hand National Bankshares Inc. (NASDAQ:NKSH) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Xenon Pharmaceuticals Inc (NASDAQ:XENE) is more popular among hedge funds. 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 XENE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XENE were disappointed as the stock returned -8.6% 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 in Q3.

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

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