Lexicon Pharmaceuticals, Inc. (LXRX): Are Hedge Funds Right About This Stock?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) .

Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) was in 18 hedge funds’ portfolios at the end of the third quarter of 2016. LXRX has seen an increase in support from the world’s most successful money managers in recent months. There were 17 hedge funds in our database with LXRX holdings at the end of the previous quarter. At the end of this article we will also compare LXRX to other stocks including Pennsylvania R.E.I.T. (NYSE:PEI), Premier Inc (NASDAQ:PINC), and Lifelock Inc (NYSE:LOCK) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)?

Heading into the fourth quarter of 2016, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 6% from the previous quarter, and the third-straight quarter with a rise in hedge fund ownership of LXRX. The graph below displays the number of hedge funds with bullish position in LXRX over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Principal Global Investors’ Columbus Circle Investors has the most valuable position in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), worth close to $18.9 million. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, holding a $17.1 million position. Remaining peers that are bullish comprise Mark Kingdon’s Kingdon Capital, David E. Shaw’s D E Shaw, and Hal Mintz’s Sabby Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Benjamin A. Smith’s Laurion Capital Management assembled the most outsized call position in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX). Laurion Capital Management had $1.8 million invested in the position at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $1.3 million position during the quarter. The only other fund with a new position in the stock is Drew Cupps’ Cupps Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) but similarly valued. These stocks are Pennsylvania R.E.I.T. (NYSE:PEI), Premier Inc (NASDAQ:PINC), Lifelock Inc (NYSE:LOCK), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks’ market valuations are closest to LXRX’s market valuation.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $113 million in LXRX’s case. Lifelock Inc (NYSE:LOCK) is the most popular stock in this table. On the other hand Pennsylvania R.E.I.T. (NYSE:PEI) is the least popular one with only 9 bullish hedge fund positions. Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) 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 LOCK might be a better candidate to consider taking a long position in.

Disclosure: None