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Hedge Funds Have Never Been This Bullish On Avadel Pharmaceuticals plc (AVDL)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Avadel Pharmaceuticals plc (NASDAQ:AVDL) based on that data and determine whether they were really smart about the stock.

Avadel Pharmaceuticals plc (NASDAQ:AVDL) investors should pay attention to an increase in enthusiasm from smart money recently. Avadel Pharmaceuticals plc (NASDAQ:AVDL) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AVDL 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).

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.

Peter Kolchinsky of RA Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. 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 website to get excerpts of these letters in your inbox. Now we’re going to take a gander at the new hedge fund action encompassing Avadel Pharmaceuticals plc (NASDAQ:AVDL).

Hedge fund activity in Avadel Pharmaceuticals plc (NASDAQ:AVDL)

Heading into the third quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AVDL over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor) has the number one position in Avadel Pharmaceuticals plc (NASDAQ:AVDL), worth close to $36.9 million, accounting for 0.7% of its total 13F portfolio. The second largest stake is held by Vivo Capital, led by Albert Cha and Frank Kung, holding a $28.5 million position; the fund has 2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Peter Kolchinsky’s RA Capital Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Manfred Yu’s Acuta Capital Partners. In terms of the portfolio weights assigned to each position Acuta Capital Partners allocated the biggest weight to Avadel Pharmaceuticals plc (NASDAQ:AVDL), around 4.09% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, setting aside 2.15 percent of its 13F equity portfolio to AVDL.

As one would reasonably expect, key money managers have jumped into Avadel Pharmaceuticals plc (NASDAQ:AVDL) headfirst. RA Capital Management, managed by Peter Kolchinsky, established the most outsized position in Avadel Pharmaceuticals plc (NASDAQ:AVDL). RA Capital Management had $25.3 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also made a $24.1 million investment in the stock during the quarter. The following funds were also among the new AVDL investors: Louis Bacon’s Moore Global Investments, Dmitry Balyasny’s Balyasny Asset Management, and D. E. Shaw’s D E Shaw.

Let’s go over hedge fund activity in other stocks similar to Avadel Pharmaceuticals plc (NASDAQ:AVDL). These stocks are Voyager Therapeutics, Inc. (NASDAQ:VYGR), Tristate Capital Holdings Inc (NASDAQ:TSC), Horizon Bancorp, Inc. (NASDAQ:HBNC), Universal Logistics Holdings, Inc. (NASDAQ:ULH), MeiraGTx Holdings plc (NASDAQ:MGTX), Triumph Group Inc (NYSE:TGI), and Merus N.V. (NASDAQ:MRUS). This group of stocks’ market valuations are similar to AVDL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VYGR 14 59419 -1
TSC 17 49693 1
HBNC 14 22051 3
ULH 9 15452 1
MGTX 18 163316 1
TGI 14 51304 -4
MRUS 15 164573 4
Average 14.4 75115 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $175 million in AVDL’s case. MeiraGTx Holdings plc (NASDAQ:MGTX) is the most popular stock in this table. On the other hand Universal Logistics Holdings, Inc. (NASDAQ:ULH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Avadel Pharmaceuticals plc (NASDAQ:AVDL) is more popular among hedge funds. Our overall hedge fund sentiment score for AVDL is 90. 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately AVDL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVDL were disappointed as the stock returned -37.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.