Here is What Hedge Funds Think About Targacept, Inc. (TRGT): ZIOPHARM Oncology Inc. (ZIOP), Chelsea Therapeutics International Ltd. (CHTP)

Targacept, Inc. (NASDAQ:TRGT) investors should pay attention to a decrease in support from the world’s most elite money managers lately.

David Shaw

According to most market participants, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, we choose to focus on the moguls of this club, around 450 funds. It is widely believed that this group has its hands on the majority of the smart money’s total capital, and by tracking their highest performing stock picks, we have identified a few investment strategies that have historically beaten the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).

Equally as key, positive insider trading sentiment is a second way to parse down the world of equities. Just as you’d expect, there are a variety of stimuli for an executive to sell shares of his or her company, but only one, very simple reason why they would initiate a purchase. Various empirical studies have demonstrated the impressive potential of this tactic if shareholders understand where to look (learn more here).

Consequently, it’s important to take a glance at the recent action encompassing Targacept, Inc. (NASDAQ:TRGT).

Hedge fund activity in Targacept, Inc. (NASDAQ:TRGT)

At year’s end, a total of 10 of the hedge funds we track held long positions in this stock, a change of -9% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes considerably.

When looking at the hedgies we track, D E Shaw, managed by D. E. Shaw, holds the biggest position in Targacept, Inc. (NASDAQ:TRGT). D E Shaw has a $2 million position in the stock, comprising 0% of its 13F portfolio. Coming in second is Renaissance Technologies, managed by Jim Simons, which held a $1 million position; the fund has 0% of its 13F portfolio invested in the stock. Other hedgies that hold long positions include Sander Gerber’s Hudson Bay Capital Management, Jacob Gottlieb’s Visium Asset Management and Israel Englander’s Millennium Management.

Since Targacept, Inc. (NASDAQ:TRGT) has witnessed a declination in interest from hedge fund managers, we can see that there were a few money managers that slashed their entire stakes at the end of the year. It’s worth mentioning that Jean-Marie Eveillard’s First Eagle Investment Management sold off the largest investment of the 450+ funds we monitor, comprising an estimated $3 million in stock., and Mike Vranos of Ellington was right behind this move, as the fund sold off about $0 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds at the end of the year.

What do corporate executives and insiders think about Targacept, Inc. (NASDAQ:TRGT)?

Insider buying is most useful when the company in focus has seen transactions within the past 180 days. Over the last 180-day time frame, Targacept, Inc. (NASDAQ:TRGT) has experienced 3 unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Targacept, Inc. (NASDAQ:TRGT). These stocks are ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), Chelsea Therapeutics International Ltd. (NASDAQ:CHTP), Geron Corporation (NASDAQ:GERN), ImmunoCellular Therapeutics Ltd (NYSEAMEX:IMUC), and Pacific Biosciences of California (NASDAQ:PACB). This group of stocks belong to the biotechnology industry and their market caps resemble TRGT’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) 6 1 0
Chelsea Therapeutics International Ltd. (NASDAQ:CHTP) 3 0 1
Geron Corporation (NASDAQ:GERN) 7 0 1
ImmunoCellular Therapeutics Ltd (NYSEAMEX:IMUC) 2 0 1
Pacific Biosciences of California (NASDAQ:PACB) 7 1 0

With the returns demonstrated by the aforementioned studies, retail investors must always pay attention to hedge fund and insider trading activity, and Targacept, Inc. (NASDAQ:TRGT) is no exception.

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Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.

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