Is CARDIOME PHARMA CORP (CRME) A Good Stock To Buy?

A market correction in the third quarter, spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of CARDIOME PHARMA CORP (NASDAQ:CRME) during the quarter.

CARDIOME PHARMA CORP (NASDAQ:CRME) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the third quarter of 2015. It is important to note that the shares of CARDIOME PHARMA CORP (NASDAQ:CRME) were down 10.31% during the quarter, so we decided to have a look at the hedge funds that still hold positions in the company, at the end of September.

The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Hill International Inc (NYSE:HIL), Allied Motion Technologies, Inc. (NASDAQ:AMOT), and Enphase Energy Inc (NASDAQ:ENPH) to gather more data points.

To most traders, hedge funds are viewed as underperforming, old investment tools of yesteryear. While there are more than 8000 funds in operation today, Our researchers choose to focus on the leaders of this group, around 700 funds. It is estimated that this group of investors administers bulk of the hedge fund industry’s total asset base, and by following their finest investments, Insider Monkey has revealed numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, we’re going to review the recent action surrounding CARDIOME PHARMA CORP (NASDAQ:CRME).

What does the smart money think about CARDIOME PHARMA CORP (NASDAQ:CRME)?

At the end of Q3, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Clough Capital Partners, managed by Charles Clough, holds the biggest position in CARDIOME PHARMA CORP (NASDAQ:CRME). Clough Capital Partners has a $13.4 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Kris Jenner, Gordon Bussard, Graham McPhail of Rock Springs Capital Management, with a $10 million position; 0.8% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise Zach Schreiber’s Point State Capital, Paul Hondros’ AlphaOne Capital Partners, and Phill Gross and Robert Atchinson’s Adage Capital Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. 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 here because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was AlphaOne Capital Partners).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CARDIOME PHARMA CORP (NASDAQ:CRME) but similarly valued. These stocks are Hill International Inc (NYSE:HIL), Allied Motion Technologies, Inc. (NASDAQ:AMOT), Enphase Energy Inc (NASDAQ:ENPH), and Bill Barrett Corporation (NYSE:BBG). This group of stocks’ market caps are similar to CARDIOME PHARMA CORP (NASDAQ:CRME)’s market cap.

As you can see, these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $38 million in CARDIOME PHARMA CORP (NASDAQ:CRME)’s case. Bill Barrett Corporation (NYSE:BBG) is the most popular stock in this table. On the other hand, Allied Motion Technologies, Inc. (NASDAQ:AMOT) is the least popular one with only 7 bullish hedge fund positions. CARDIOME PHARMA CORP (NASDAQ:CRME) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Bill Barrett Corporation (NYSE:BBG) might be a better candidate to consider a long position.