Blue Jay Capital Betting On Big Returns From These Healthcare Stocks

Founded by Paul Sinclair in August 2014, Blue Jay Capital Management is a healthcare-focused hedge fund based in California. Prior to founding Blue Jay Capital (named after Canada’s only current Major League Baseball team, the Toronto Blue Jays), Mr. Sinclair founded and ran another healthcare-focused hedge fund Expo Capital Management (named after the former Canadian MLB team the Montreal Expos, which moved to Washington after the 2004 season to become the Nationals), which he closed down in 2012 amid the European sovereign debt crisis and after posting negative returns between 2011 and 2012.

Though Blue Jay Capital currently manages regulatory assets worth over $460 million, its latest 13F filing shows that less than one-third of those assets, or $152.28 million, was invested in public U.S. equities at the end of the second quarter. The filing also revealed that during the second quarter, the fund’s equity portfolio experienced a very high quarterly turnover rate of 128.57% and that it was considerably top-heavy at the end of June, with the fund’s top-5 holdings amassing over 40% of the value of its equity portfolio. In this article, we will take a look at those five stocks on which Blue Jay Capital Management was betting heavily on for big returns.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

#5. Masimo Corporation (NASDAQ:MASI)

– Shares Owned by Blue Jay Capital Management (as of June 30): 218,960

– Value of Holding (as of June 30): $11.5 Million

Blue Jay Capital Management increased its stake in Masimo Corporation (NASDAQ:MASI) by 43% during the second quarter, which pushed the company to the fifth spot in the fund’s portfolio at the end of June, from the 13th spot at the end of March. The medical technology company has reported solid numbers for its past two quarters, causing its stock to appreciate significantly, as it now trades with year-to-date gains of 40.15%. The stock recently made its lifetime high at $60.46 and is currently trading very close to it. For its fiscal year 2016 third quarter, analysts are expecting the company to report EPS of $0.42 on revenue of $165.51 million. For the same quarter of the previous year, Masimo Corporation (NASDAQ:MASI) pulled in EPS of $0.36 on revenue of $152.57 million. The number of hedge funds in our system that were long Masimo inched up by one during the second quarter, while the aggregate value of their holdings in it rose by $4.6 million to almost $131 million.

#4. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

– Shares Owned by Blue Jay Capital Management (as of June 30): 152,253

– Value of Holding (as of June 30): $11.84 Million

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) also jumped several spots in Blue Jay Capital’s equity portfolio during the second quarter, as the fund more than doubled its stake in the company during that time. Other hedge funds that also upped their stakes in the company significantly during the second quarter included Anand Parekh‘s Alyeska Investment Group and Sander Gerber‘s Hudson Bay Capital Management. Up until last June, BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) was one of the most acclaimed names in the biotech space. However, the downturn in the sector since then has taken a heavy toll on BioMarin Pharmaceutical’s stock and it currently trades down by 7.4% year-to-date. Earlier this month, the company submitted long-term efficacy data for its drug cerliponase alfa with the FDA, as requested by the agency, which showed a prolonged treatment effect in children with Batten disease. On September 16, analysts at Leerink Swann reiterated their ‘Outperform’ rating and $127 price target on the stock. At the end of June, 42 hedge funds that we track were long BioMarin Pharmaceutical, with the aggregate value of their holdings in it amounting to $1.50 billion.

Blue Jay Capital’s three favorite healthcare stocks are analyzed on the second page.

#3. Mead Johnson Nutrition CO (NYSE:MJN)

– Shares Owned by Blue Jay Capital Management (as of June 30): 135,045

– Value of Holding (as of June 30): $12.25 Million

Having initiated its stake in Mead Johnson Nutrition CO (NYSE:MJN) during the first quarter of 2016, Blue Jay Capital proceeded to reduce it by 19% during the second quarter. Mead Johnson Nutrition CO (NYSE:MJN)’s stock has fallen considerably since late-July and is currently trading down by 3.24% in 2016. The company currently pays a quarterly dividend of $0.4125 per share, which amounts to an annual dividend yield of 2.15%. Despite the stock’s recent weakness, given the company’s weak financial numbers since the beginning of 2015 and the significant operational headwinds that it is facing from increased competition, some analysts believe that MJN’s shares are still trading at a premium valuation, which could result in the stock seeing further downside going forward. However, analysts at Credit Suisse don’t agree with that view. On September 12, they reiterated their ‘Buy’ rating on the stock and set a price target of $100 on it, which represents potential upside of 30.2%. The popularity of Mead Johnson Nutrition among the funds covered by Insider Monkey took a significant beating during the second quarter, as ownership of the stock declined by 30% to 28 and the aggregate value of their holdings in it shrank by $234.4 million to $765.22 million.

#2. Seattle Genetics, Inc. (NASDAQ:SGEN)

– Shares Owned by Blue Jay Capital Management (as of June 30): 328,430

– Value of Holding (as of June 30): $13.27 Million

Seattle Genetics, Inc. (NASDAQ:SGEN) was a new entry in Blue Jay Capital’s equity portfolio during the second quarter. The stock has appreciated by over 35% since the end of that period and is currently trading very close to its lifetime high. Though most analysts don’t think that the company will be reporting stellar financial number for its next two quarters, a lot of them are of the opinion that 2017 will be a breakout year for the company in terms of sales, which will push the stock higher. On September 16, analysts at Goldman Sachs upgraded the stock to ‘Neutral’ from ‘Sell’ and also hiked their price target on it to $47 from $30. However, that price target still represents potential downside of 14.2%. During the second quarter, ownership of Seattle Genetics, Inc. (NASDAQ:SGEN) among that funds that we cover increased by 66% to 20 and the aggregate value of their holdings in it jumped by 20.75% to $1.90 billion.

#1. Neurocrine Biosciences, Inc. (NASDAQ:NBIX)

– Shares Owned by Blue Jay Capital Management (as of June 30): 305,630

– Value of Holding (as of June 30): $13.89 Million

Despite Blue Jay Capital reducing its stake in the company by 15% during the second quarter, Neurocrine Biosciences, Inc. (NASDAQ:NBIX) jumped two spots to become its largest holding at the end of June. Neurocrine Biosciences’ stock took a big hit at the beginning of 2016, but has recouped most of those losses since then and is currently trading down by 3.29% for the year. At the end of last month, the company submitted a New Drug Application (NDA) with the FDA seeking approval for once-daily ‘valbenazine’, for the treatment of tardive dyskinesia, a neurological disorder characterized by involuntary repetitive movements of the face. Analysts who track Neurocrine’s stock feel that it is undervalued if one takes into account the potential of its two lead drugs elagolix and valbenazine. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) was held by 39 funds in our system on June 30, with the aggregate value of their holdings in it standing at $650 million.

Disclosure: None