Are Hedge Funds Losing Interest In Ocera Therapeutics Inc (OCRX)?

Is Ocera Therapeutics Inc (NASDAQ:OCRX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Ocera Therapeutics Inc (NASDAQ:OCRX) shareholders have witnessed a slight decrease in support from the world’s most elite money managers recently. OCRX was in 9 hedge funds’ portfolios at the end of the third quarter of 2015. There were 10 hedge funds in our database with OCRX positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AXT Inc (NASDAQ:AXTI), BlueLinx Holdings Inc. (NYSE:BXC), and RCS Capital Corp (NYSE:RCAP) to gather more data points.

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In today’s marketplace there are a lot of gauges market participants use to appraise stocks. A pair of the less utilized gauges are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the best fund managers can trounce the market by a solid amount (see the details here).

Now, let’s review the recent action encompassing Ocera Therapeutics Inc (NASDAQ:OCRX).

What have hedge funds been doing with Ocera Therapeutics Inc (NASDAQ:OCRX)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Jay and David Kroin’s Great Point Partners has the largest position in Ocera Therapeutics Inc (NASDAQ:OCRX), worth close to $6.2 million, comprising 2.5% of its total 13F portfolio. On Great Point Partners’s heels is Daniel Gold’s QVT Financial, with a $2.3 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism comprise Anders Hove and Bong Koh’s VHCP Management, Israel Englander’s Millennium Management and Hal Mintz’s Sabby Capital.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 none of the 700+ hedge funds tracked by Insider Monkey identified OCRX as a viable investment and initiated a position in the stock.

Let’s go over hedge fund activity in other stocks similar to Ocera Therapeutics Inc (NASDAQ:OCRX). These stocks are AXT Inc (NASDAQ:AXTI), BlueLinx Holdings Inc. (NYSE:BXC), RCS Capital Corp (NYSE:RCAP), and Quest Resource Holding Corp (NASDAQ:QRHC). This group of stocks’ market values match OCRX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXTI 4 9351 0
BXC 7 45941 -3
RCAP 15 16564 -4
QRHC 7 3094 0

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million, higher than the $15 million figure in OCRX’s case. RCS Capital Corp (NYSE:RCAP) is the most popular stock in this table with 15 funds holding shares, while AXT Inc (NASDAQ:AXTI) is the least popular one. Ocera Therapeutics Inc (NASDAQ:OCRX) 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 RCAP might be a better candidate to consider a long position.