Should You Avoid Achaogen Inc (AKAO)?

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Achaogen Inc (NASDAQ:AKAO) from the perspective of those elite funds.

Is Achaogen Inc (NASDAQ:AKAO) the right investment to pursue these days? The best stock pickers are becoming less confident. The number of long hedge fund bets fell by 2 in recent months. At the end of this article, we will also compare Achaogen Inc (NASDAQ:AKAO) to other stocks, including Epirus Biopharmaceuticals Inc (NASDAQ:EPRS), Vermillion, Inc. (NASDAQ:VRML), and Digital Turbine Inc (NASDAQ:APPS) to get a better sense of its popularity.

To the average investor, there are dozens of methods that stock traders put to use to appraise their stock investments. Some of the most under-the-radar methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite fund managers can outclass the market by a very impressive margin (see the details here).

Now, let’s go over the latest action surrounding Achaogen Inc (NASDAQ:AKAO).

How have hedgies been trading Achaogen Inc (NASDAQ:AKAO)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 22% from the second quarter. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Michael Murphy and Daniel Donoghue’s Discovery Group has the most valuable position in Achaogen Inc (NASDAQ:AKAO), worth close to $5.1 million, accounting for 1.8% of its total 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $1.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include Steve Cohen’s Point72 Asset Management, Michael Hintze’s CQS Cayman LP, and Julian Baker and Felix Baker’s Baker Bros. Advisors.

Because Achaogen Inc (NASDAQ:AKAO) has faced a falling interest from hedge fund managers, logic holds that there was a specific group of hedgies who sold off their full holdings in the third quarter. It’s worth mentioning that Mark Lampert’s Biotechnology Value Fund / BVF Inc cut the largest investment of the 700 funds followed by Insider Monkey, totaling close to $0.6 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $0.1 million worth of shares. These moves are important to note, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Achaogen Inc (NASDAQ:AKAO) but similarly valued. We will take a look at Epirus Biopharmaceuticals Inc (NASDAQ:EPRS), Vermillion, Inc. (NASDAQ:VRML), Digital Turbine Inc (NASDAQ:APPS), and Ocean Shore Holding Co (NASDAQ:OSHC). This group of stocks’ market caps matches Achaogen Inc (NASDAQ:AKAO)’s market cap.

As you can see, these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $10 million in Achaogen Inc (NASDAQ:AKAO)’s case. Epirus Biopharmaceuticals Inc (NASDAQ:EPRS) is the most popular stock in this table. On the other hand, Vermillion, Inc. (NASDAQ:VRML) is the least popular one with only 4 bullish hedge fund positions. Achaogen Inc (NASDAQ:AKAO) 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, Epirus Biopharmaceuticals Inc (NASDAQ:EPRS) might be a better candidate to consider a long position.