There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Peregrine Pharmaceuticals (NASDAQ:PPHM).
Hedge fund interest in Peregrine Pharmaceuticals (NASDAQ:PPHM) shares was flat at the end of last quarter, even though the stock lost 21% during the quarter. The company is expected to increase its revenue, although its bottom line estimates are deep in the red territory. Let’s take a closer look at which funds decided to stick to their holdings in the company. In addition, at the end of this article we will also compare PPHM to other stocks, including Black Diamond Inc (NASDAQ:BDE), China XD Plastics Co Ltd (NASDAQ:CXDC), and Enzymotec Ltd (NASDAQ:ENZY) to get a better sense of its popularity.
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To the average investor, there are many tools market participants have at their disposal to grade publicly traded companies. Some of the most under-the-radar tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite fund managers can outperform the market by a solid margin (see the details here).
Now, let’s take a look at the new action surrounding Peregrine Pharmaceuticals (NASDAQ:PPHM).
What does the smart money think about Peregrine Pharmaceuticals (NASDAQ:PPHM)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock. Among them, Millennium Management, led by Israel Englander, holds the number one position in Peregrine Pharmaceuticals (NASDAQ:PPHM), valued at $0.9 million and comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Iguana Healthcare Management, managed by Stuart Weisbrod, which holds a $0.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism encompass Jim Simons’ Renaissance Technologies, Hal Mintz’s Sabby Capital and Cliff Asness’ AQR 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: D E Shaw. 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 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 Iguana Healthcare Management).
Let’s now take a look at hedge fund activity in other stocks similar to Peregrine Pharmaceuticals (NASDAQ:PPHM). We will take a look at Black Diamond Inc (NASDAQ:BDE), China XD Plastics Co Ltd (NASDAQ:CXDC), Enzymotec Ltd (NASDAQ:ENZY), and Bonanza Creek Energy Inc (NYSE:BCEI). This group of stocks’ market caps are closest to PPHM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BDE | 8 | 23683 | -4 |
| CXDC | 4 | 12822 | 1 |
| ENZY | 5 | 68203 | 0 |
| BCEI | 15 | 53754 | -3 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was just $2 million in PPHM’s case. Bonanza Creek Energy Inc (NYSE:BCEI) is the most popular stock in this table with a total of 15 funds reporting long positions. On the other hand China XD Plastics Co Ltd (NASDAQ:CXDC) is the least popular one with only 4 bullish hedge fund positions. Peregrine Pharmaceuticals (NASDAQ:PPHM) 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 BCEI might be a better candidate to consider a long position.
