How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX) and determine whether hedge funds had an edge regarding this stock.
Is Mirati Therapeutics, Inc. (NASDAQ:MRTX) worth your attention right now? The best stock pickers were in a bullish mood. The number of bullish hedge fund positions improved by 3 recently. Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MRTX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 33 hedge funds in our database with MRTX holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to go over the recent hedge fund action surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX).
Hedge fund activity in Mirati Therapeutics, Inc. (NASDAQ:MRTX)
Heading into the third quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in MRTX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Mirati Therapeutics, Inc. (NASDAQ:MRTX) was held by Avoro Capital Advisors (venBio Select Advisor), which reported holding $489.4 million worth of stock at the end of September. It was followed by Perceptive Advisors with a $316.4 million position. Other investors bullish on the company included Baker Bros. Advisors, OrbiMed Advisors, and Farallon Capital. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 9.68% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, dishing out 5.14 percent of its 13F equity portfolio to MRTX.
As one would reasonably expect, key money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). Point72 Asset Management had $21.3 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also made a $8.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Parvinder Thiara’s Athanor Capital, Karim Abbadi and Edward McBride’s Centiva Capital, and Greg Poole’s Echo Street Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mirati Therapeutics, Inc. (NASDAQ:MRTX) but similarly valued. We will take a look at Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), Skechers USA Inc (NYSE:SKX), Invesco Ltd. (NYSE:IVZ), People’s United Financial, Inc. (NASDAQ:PBCT), First Industrial Realty Trust, Inc. (NYSE:FR), and Novavax, Inc. (NASDAQ:NVAX). This group of stocks’ market caps resemble MRTX’s market cap.
|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 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $1587 million in MRTX’s case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand Dada Nexus Limited (NASDAQ:DADA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Mirati Therapeutics, Inc. (NASDAQ:MRTX) is more popular among hedge funds. Our overall hedge fund sentiment score for MRTX is 88. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on MRTX as the stock returned 30.8% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.