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This Metric Says You Are Smart to Sell Star Scientific, Inc. (STSI)

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Star Scientific, Inc. (NASDAQ:STSI)Star Scientific, Inc. (NASDAQ:STSI) was in 4 hedge funds’ portfolio at the end of March. STSI investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 6 hedge funds in our database with STSI positions at the end of the previous quarter.

According to most shareholders, hedge funds are perceived as unimportant, old investment vehicles of the past. While there are more than 8000 funds trading at the moment, we at Insider Monkey hone in on the crème de la crème of this group, about 450 funds. Most estimates calculate that this group controls the majority of the hedge fund industry’s total capital, and by monitoring their highest performing stock picks, we have come up with a number of investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as integral, positive insider trading activity is another way to break down the investments you’re interested in. Just as you’d expect, there are a number of stimuli for a bullish insider to downsize shares of his or her company, but only one, very simple reason why they would initiate a purchase. Many academic studies have demonstrated the market-beating potential of this tactic if piggybackers know where to look (learn more here).

Keeping this in mind, we’re going to take a look at the recent action surrounding Star Scientific, Inc. (NASDAQ:STSI).

How have hedgies been trading Star Scientific, Inc. (NASDAQ:STSI)?

Heading into Q2, a total of 4 of the hedge funds we track were long in this stock, a change of -33% from the first quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully.

According to our comprehensive database, Matthew Hulsizer’s PEAK6 Capital Management had the biggest call position in Star Scientific, Inc. (NASDAQ:STSI), worth close to $0.3 million, comprising less than 0.1%% of its total 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $0.2 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Cliff Asness’s AQR Capital Management, Paul Tudor Jones’s Tudor Investment Corp and Ken Griffin’s Citadel Investment Group.

Since Star Scientific, Inc. (NASDAQ:STSI) has faced falling interest from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that elected to cut their positions entirely heading into Q2. It’s worth mentioning that D. E. Shaw’s D E Shaw sold off the biggest position of the “upper crust” of funds we watch, totaling about $1.1 million in stock., and Russell Lucas of Lucas Capital Management was right behind this move, as the fund cut about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q2.

What have insiders been doing with Star Scientific, Inc. (NASDAQ:STSI)?

Insider buying is best served when the primary stock in question has experienced transactions within the past 180 days. Over the last half-year time frame, Star Scientific, Inc. (NASDAQ:STSI) has seen zero unique insiders buying, and 1 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Star Scientific, Inc. (NASDAQ:STSI). These stocks are Astex Pharmaceuticals, Inc. (NASDAQ:ASTX), SIGA Technologies, Inc. (NASDAQ:SIGA), AcelRx Pharmaceuticals Inc (NASDAQ:ACRX), Raptor Pharmaceutical Corp. (NASDAQ:RPTP), and Regulus Therapeutics Inc (NASDAQ:RGLS). All of these stocks are in the drug manufacturers – major industry and their market caps resemble STSI’s market cap.

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