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ArQule, Inc. (ARQL): Are Hedge Funds Right About This Stock?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about ArQule, Inc. (NASDAQ:ARQL).

ArQule, Inc. (NASDAQ:ARQL) was in 23 hedge funds’ portfolios at the end of September. ARQL has experienced an increase in support from the world’s most elite money managers recently. There were 15 hedge funds in our database with ARQL positions at the end of the previous quarter. Our calculations also showed that ARQL isn’t among the 30 most popular stocks among hedge funds.

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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MILLENNIUM MANAGEMENT

Let’s take a peek at the latest hedge fund action regarding ArQule, Inc. (NASDAQ:ARQL).

How have hedgies been trading ArQule, Inc. (NASDAQ:ARQL)?

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 53% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in ARQL at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ARQL_dec2018

More specifically, Nantahala Capital Management was the largest shareholder of ArQule, Inc. (NASDAQ:ARQL), with a stake worth $68.5 million reported as of the end of September. Trailing Nantahala Capital Management was Millennium Management, which amassed a stake valued at $36 million. Biotechnology Value Fund / BVF Inc, Nexthera Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Nexthera Capital, managed by Ori Hershkovitz, established the most valuable position in ArQule, Inc. (NASDAQ:ARQL). Nexthera Capital had $9.8 million invested in the company at the end of the quarter. Thomas Steyer’s Farallon Capital also initiated a $2.8 million position during the quarter. The following funds were also among the new ARQL investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Bihua Chen’s Cormorant Asset Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ArQule, Inc. (NASDAQ:ARQL) but similarly valued. These stocks are Luther Burbank Corporation (NASDAQ:LBC), Mistras Group, Inc. (NYSE:MG), Nuveen California AMT-Free Quality Municipal Income Fund (NYSE:NKX), and ProQR Therapeutics NV (NASDAQ:PRQR). This group of stocks’ market values resemble ARQL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LBC 5 36150 -1
MG 13 46145 4
NKX 4 16653 0
PRQR 12 163172 4
Average 8.5 65530 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $176 million in ARQL’s case. Mistras Group, Inc. (NYSE:MG) is the most popular stock in this table. On the other hand Nuveen California AMT-Free Quality Municipal Income Fund (NYSE:NKX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks ArQule, Inc. (NASDAQ:ARQL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None. This article was originally published at Insider Monkey.

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