Is Arena Pharmaceuticals, Inc. (ARNA) A Good Stock To Buy?

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified ARNA as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. These stocks are Incontact Inc (NASDAQ:SAAS), Stock Building Supply Holdings Inc (NASDAQ:STCK), Acacia Research Corporation (NASDAQ:ACTG), and DTS Inc. (NASDAQ:DTSI). All of these stocks’ market caps resemble ARNA’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $36 million in ARNA’s case. Incontact Inc (NASDAQ:SAAS) is the most popular stock in this table, while Stock Building Supply Holdings Inc (NASDAQ:STCK) is the least popular one with only 11 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SAAS might be a better candidate to consider a long position.