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Hedge Funds Lost Their Shirts In Akorn, Inc. (AKRX)

We I looked at Akorn, Inc. (NASDAQ:AKRX)’s historical hedge fund sentiment chart I noticed that AKRX was an extremely popular stock among hedge funds 4-5 years ago. It was trading at $40 per share back then, vs. only $0.09 today. I see that activist hedge fund manager Tom Sandell bought AKRX 5 years ago. This $5 billion company now can be bought for less than $12 million. Clearly hedge funds invested in AKRX lost their shirts.

Surprisingly there were still a dozen hedge funds with Akorn, Inc. (NASDAQ:AKRX) positions at the end of March. AKRX has seen a decrease in activity from the world’s largest hedge funds though. There were 14 hedge funds in our database with AKRX holdings at the end of December. Our calculations also showed that AKRX 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.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Akorn, Inc. (NASDAQ:AKRX).

What have hedge funds been doing with Akorn, Inc. (NASDAQ:AKRX)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AKRX over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Akorn, Inc. (NASDAQ:AKRX), which was worth $5.3 million at the end of the third quarter. On the second spot was Canyon Capital Advisors which amassed $2.8 million worth of shares. Rubric Capital Management, AQR Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rubric Capital Management allocated the biggest weight to Akorn, Inc. (NASDAQ:AKRX), around 0.4% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to AKRX.

Because Akorn, Inc. (NASDAQ:AKRX) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who sold off their entire stakes heading into Q4. Intriguingly, Lee Ainslie’s Maverick Capital cut the biggest stake of all the hedgies tracked by Insider Monkey, worth close to $1.9 million in stock, and Kamran Moghtaderi’s Eversept Partners was right behind this move, as the fund dropped about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Akorn, Inc. (NASDAQ:AKRX). These stocks are Lumos Pharma, Inc. (NASDAQ:LUMO), Allied Healthcare Products Inc (NASDAQ:AHPI), International Tower Hill Mines Ltd (NYSE:THM), and Civeo Corporation (NYSE:CVEO). This group of stocks’ market caps resemble AKRX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LUMO 5 14519 0
AHPI 1 5000 0
THM 4 37049 0
CVEO 12 27822 -6
Average 5.5 21098 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $14 million in AKRX’s case. Civeo Corporation (NYSE:CVEO) is the most popular stock in this table. On the other hand Allied Healthcare Products Inc (NASDAQ:AHPI) is the least popular one with only 1 bullish hedge fund positions. Akorn, Inc. (NASDAQ:AKRX) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately AKRX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AKRX were disappointed as the stock returned -50.1% 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.