At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ardelyx Inc (NASDAQ:ARDX) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Ardelyx Inc (NASDAQ:ARDX) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. ARDX investors should be aware of an increase in hedge fund sentiment of late. There were 20 hedge funds in our database with ARDX positions at the end of the first quarter. Our calculations also showed that ARDX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the fresh hedge fund action encompassing Ardelyx Inc (NASDAQ:ARDX).
What have hedge funds been doing with Ardelyx Inc (NASDAQ:ARDX)?
At Q2’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in ARDX a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Ardelyx Inc (NASDAQ:ARDX) was held by RA Capital Management, which reported holding $43.3 million worth of stock at the end of September. It was followed by Rock Springs Capital Management with a $34.7 million position. Other investors bullish on the company included Adage Capital Management, Redmile Group, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to Ardelyx Inc (NASDAQ:ARDX), around 1.21% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, dishing out 1.19 percent of its 13F equity portfolio to ARDX.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Opaleye Management, managed by James A. Silverman, initiated the most outsized position in Ardelyx Inc (NASDAQ:ARDX). Opaleye Management had $3.3 million invested in the company at the end of the quarter. Chen Tianqiao’s Shanda Asset Management also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new ARDX investors: Parvinder Thiara’s Athanor Capital, Greg Eisner’s Engineers Gate Manager, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ardelyx Inc (NASDAQ:ARDX) but similarly valued. We will take a look at Orthofix Medical Inc (NASDAQ:OFIX), Tenneco Inc (NYSE:TEN), National Presto Industries Inc. (NYSE:NPK), ScanSource, Inc. (NASDAQ:SCSC), TrustCo Bank Corp NY (NASDAQ:TRST), AnaptysBio, Inc. (NASDAQ:ANAB), and Evolent Health Inc (NYSE:EVH). This group of stocks’ market values match ARDX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $243 million in ARDX’s case. AnaptysBio, Inc. (NASDAQ:ANAB) is the most popular stock in this table. On the other hand National Presto Industries Inc. (NYSE:NPK) is the least popular one with only 8 bullish hedge fund positions. Ardelyx Inc (NASDAQ:ARDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARDX is 82.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately ARDX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ARDX were disappointed as the stock returned -22.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.