When it comes to the risk-reward ratio, there are very few sectors which can match up to healthcare. The healthcare universe boasts of several companies which on the back of a drug approval or a M&A deal swiftly completed the journey from being a small-cap stock to a large-cap stock. However, being a highly advanced field investors find it extremely difficult to find the right healthcare stocks for their portfolios, especially those stocks which have the potential to become multi-bagger in the future. To make their stock selection easier, we at Insider Monkey consistently analyze the portfolios of over 800 hedge funds that we cover in order to identify those hidden gems in the healthcare sector which are currently trading cheap, but have the backing of several large investors. Taking that into account, in this post we are going to focus on the five healthcare stocks that are currently trading under $10 per share and which ranked as the most popular among hedge funds covered by us going into 2016.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Array Biopharma Inc (NASDAQ:ARRY)
– Investors with Long Positions (as of December 31): 23
– Aggregate Value of Investors’ Holdings (as of December 31): $265 million
While the ownership of Array Biopharma Inc (NASDAQ:ARRY) among investors covered by us inched up by one during the fourth quarter, the aggregate value of their holdings in the company saw a marginal decline of $1.17 million. Array Biopharma Inc (NASDAQ:ARRY) has lost more than half of its market capitalization in the past six months and is currently trading down by over 36% year-to-date. For its fiscal 2016 second quarter, the company reported a per share loss of $0.17 on revenue of $35.40 million versus analysts’ expectation of a per share loss of $0.06 on revenue of $32.70 million. A day after its earnings release, on February 3, analysts at Stifel Nicolaus reiterated their ‘Buy’ rating on the stock, but lowered their price target to $7 from $8. Among the hedge funds that reduced their stakes in the company during the fourth quarter was James E. Flynn‘s Deerfield Management. The fund cut its holding by 11% to 8.73 million shares during that period.