Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like DURECT Corporation (NASDAQ:DRRX).
DURECT Corporation (NASDAQ:DRRX) shareholders have witnessed an increase in hedge fund sentiment recently. Our calculations also showed that DRRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are viewed as slow, old financial vehicles of years past. While there are over 8000 funds trading today, Our researchers choose to focus on the moguls of this group, approximately 750 funds. These money managers shepherd most of the hedge fund industry’s total asset base, and by following their finest stock picks, Insider Monkey has deciphered a number of investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Didric Cederholm of Lion Point Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the new hedge fund action regarding DURECT Corporation (NASDAQ:DRRX).
How are hedge funds trading DURECT Corporation (NASDAQ:DRRX)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 80% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DRRX over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in DURECT Corporation (NASDAQ:DRRX) was held by Lion Point, which reported holding $34.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $7.4 million position. Other investors bullish on the company included Millennium Management, Winton Capital Management, and Paloma Partners. In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to DURECT Corporation (NASDAQ:DRRX), around 3.85% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to DRRX.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Winton Capital Management, managed by David Harding, established the most outsized position in DURECT Corporation (NASDAQ:DRRX). Winton Capital Management had $0.9 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new DRRX position is Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks similar to DURECT Corporation (NASDAQ:DRRX). These stocks are Ladenburg Thalmann Financial Services Inc. (NYSEAMERICAN:LTS), Clarus Corporation (NASDAQ:CLAR), Limelight Networks, Inc. (NASDAQ:LLNW), and CymaBay Therapeutics Inc (NASDAQ:CBAY). This group of stocks’ market valuations are similar to DRRX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LTS | 6 | 2560 | 1 |
| CLAR | 12 | 47803 | -2 |
| LLNW | 13 | 40097 | 2 |
| CBAY | 21 | 155764 | -3 |
| Average | 13 | 61556 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $45 million in DRRX’s case. CymaBay Therapeutics Inc (NASDAQ:CBAY) is the most popular stock in this table. On the other hand Ladenburg Thalmann Financial Services Inc. (NYSEAMERICAN:LTS) is the least popular one with only 6 bullish hedge fund positions. DURECT Corporation (NASDAQ:DRRX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on DRRX as the stock returned 15.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
