Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
Is Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) undervalued? The best stock pickers were taking a pessimistic view. The number of long hedge fund positions retreated by 6 in recent months. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was in 33 hedge funds’ portfolios at the end of March. The all time high for this statistic is 43. Our calculations also showed that ARNA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 39 hedge funds in our database with ARNA positions at the end of the fourth quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). 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, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to check out the fresh hedge fund action surrounding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
Do Hedge Funds Think ARNA Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 36 hedge funds with a bullish position in ARNA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) has the most valuable position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), worth close to $281 million, accounting for 4.9% of its total 13F portfolio. The second largest stake is held by Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $122.5 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism consist of Brandon Haley’s Holocene Advisors, Farallon Capital and Andreas Halvorsen’s Viking Global. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 6.01% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, designating 5.39 percent of its 13F equity portfolio to ARNA.
Judging by the fact that Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of fund managers who were dropping their entire stakes heading into Q2. At the top of the heap, Roberto Mignone’s Bridger Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $5.3 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dropped about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q2.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. These stocks are Yamana Gold Inc. (NYSE:AUY), Advanced Energy Industries, Inc. (NASDAQ:AEIS), JBG SMITH Properties (NYSE:JBGS), Certara, Inc. (NASDAQ:CERT), Endava plc (NYSE:DAVA), Ultrapar Participacoes SA (NYSE:UGP), and Adient plc (NYSE:ADNT). This group of stocks’ market valuations resemble ARNA’s market valuation.
|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 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $823 million in ARNA’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 7 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARNA is 62.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately ARNA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ARNA were disappointed as the stock returned 1.7% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.