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Hedge Funds Have Never Been This Bullish On Principia Biopharma Inc. (PRNB)

In this article you are going to find out whether hedge funds think Principia Biopharma Inc. (NASDAQ:PRNB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Principia Biopharma Inc. (NASDAQ:PRNB) was in 21 hedge funds’ portfolios at the end of March. PRNB has experienced an increase in enthusiasm from smart money lately. There were 20 hedge funds in our database with PRNB holdings at the end of the previous quarter. Our calculations also showed that PRNB isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 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.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the latest hedge fund action surrounding Principia Biopharma Inc. (NASDAQ:PRNB).

What have hedge funds been doing with Principia Biopharma Inc. (NASDAQ:PRNB)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in PRNB a year ago. So, let’s review 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, Redmile Group, managed by Jeremy Green, holds the largest position in Principia Biopharma Inc. (NASDAQ:PRNB). Redmile Group has a $134.3 million position in the stock, comprising 3.8% of its 13F portfolio. The second most bullish fund manager is Bihua Chen of Cormorant Asset Management, with a $124.7 million position; 5.8% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism consist of Julian Baker and Felix Baker’s Baker Bros. Advisors, Mark Lampert’s Biotechnology Value Fund / BVF Inc and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Samsara BioCapital allocated the biggest weight to Principia Biopharma Inc. (NASDAQ:PRNB), around 13.71% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, dishing out 8.76 percent of its 13F equity portfolio to PRNB.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Consonance Capital Management, managed by Mitchell Blutt, assembled the largest position in Principia Biopharma Inc. (NASDAQ:PRNB). Consonance Capital Management had $41 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $25.7 million position during the quarter. The other funds with new positions in the stock are Michael Rockefeller and KarláKroeker’s Woodline Partners, Israel Englander’s Millennium Management, and Nick Thakore’s Diametric Capital.

Let’s go over hedge fund activity in other stocks similar to Principia Biopharma Inc. (NASDAQ:PRNB). These stocks are Steven Madden, Ltd. (NASDAQ:SHOO), Varonis Systems Inc (NASDAQ:VRNS), TFI International Inc. (NYSE:TFII), and Outfront Media Inc. (REIT) (NYSE:OUT). This group of stocks’ market caps are closest to PRNB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHOO 18 58658 -4
VRNS 20 387926 2
TFII 12 41372 12
OUT 30 329476 -1
Average 20 204358 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $735 million in PRNB’s case. Outfront Media Inc. (REIT) (NYSE:OUT) is the most popular stock in this table. On the other hand TFI International Inc. (NYSE:TFII) is the least popular one with only 12 bullish hedge fund positions. Principia Biopharma Inc. (NASDAQ:PRNB) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately PRNB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PRNB were disappointed as the stock returned 4% during the same time period 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 many of these stocks already outperformed the market so far this year.

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