Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Cidara Therapeutics Inc (NASDAQ:CDTX) from the perspective of those successful funds.
Is Cidara Therapeutics Inc (NASDAQ:CDTX) an outstanding investment now? Prominent investors are actually reducing their bets on the stock. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings decreased by 2 in recent months. There were 7 hedge funds in our database with CDTX holdings at the end of September. At the end of this article we will also compare CDTX to other stocks including Enzymotec Ltd (NASDAQ:ENZY), GigOptix Inc (NYSEAMEX:GIG), and CAI International Inc (NYSE:CAI) to get a better sense of its popularity.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
With all of this in mind, let’s review the recent action regarding Cidara Therapeutics Inc (NASDAQ:CDTX).
Hedge fund activity in Cidara Therapeutics Inc (NASDAQ:CDTX)
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CDTX over the last 5 quarters. So, let’s see 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, Frazier Healthcare Partners, led by Alan Frazier, holds the largest position in Cidara Therapeutics Inc (NASDAQ:CDTX). According to regulatory filings, the fund has a $15 million position in the stock, comprising 7.4% of its 13F portfolio. Sitting at the No. 2 spot is Aisling Capital, led by Dennis Purcell, which holds a $11.7 million position; 2.4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish consist of Joseph Edelman’s Perceptive Advisors, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Hal Mintz’s Sabby Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Since Cidara Therapeutics Inc (NASDAQ:CDTX) has sustained falling interest from the smart money, it’s easy to see that there was a specific group of hedgies that elected to cut their full holdings by the end of the third quarter. Intriguingly, Peter Kolchinsky’s RA Capital Management said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, comprising about $4.2 million in stock, and James A. Silverman’s Opaleye Management was right behind this move, as the fund sold off about $0.4 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks similar to Cidara Therapeutics Inc (NASDAQ:CDTX). We will take a look at Enzymotec Ltd (NASDAQ:ENZY), GigOptix Inc (NYSEAMEX:GIG), CAI International Inc (NYSE:CAI), and A. H. Belo Corporation (NYSE:AHC). This group of stocks’ market valuations are closest to CDTX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $43 million in CDTX’s case. Enzymotec Ltd (NASDAQ:ENZY) is the most popular stock in this table. On the other hand A. H. Belo Corporation (NYSE:AHC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cidara Therapeutics Inc (NASDAQ:CDTX) 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.