In this article we are going to use hedge fund sentiment as a tool and determine whether AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is AcelRx Pharmaceuticals (ACRX) a good stock to buy now? ACRX was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. ACRX shareholders have witnessed an increase in hedge fund interest recently. There were 3 hedge funds in our database with ACRX positions at the end of the second quarter. Our calculations also showed that ACRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let’s view the recent hedge fund action encompassing AcelRx Pharmaceuticals Inc (NASDAQ:ACRX).
What does smart money think about AcelRx Pharmaceuticals Inc (NASDAQ:ACRX)?
Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in ACRX a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) was held by Rock Springs Capital Management, which reported holding $5.4 million worth of stock at the end of September. It was followed by D E Shaw with a $1.2 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Rock Springs Capital Management allocated the biggest weight to AcelRx Pharmaceuticals Inc (NASDAQ:ACRX), around 0.14% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, designating 0.0012 percent of its 13F equity portfolio to ACRX.
As one would reasonably expect, key hedge funds have been driving this bullishness. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, established the biggest position in AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). Rock Springs Capital Management had $5.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.3 million investment in the stock during the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) but similarly valued. We will take a look at Platinum Group Metals Limited (NYSE:PLG), Codorus Valley Bancorp, Inc. (NASDAQ:CVLY), NACCO Industries, Inc. (NYSE:NC), Evogene Ltd. (NASDAQ:EVGN), Battalion Oil Corporation (NYSE:BATL), Riot Blockchain, Inc (NASDAQ:RIOT), and Points International Ltd (NASDAQ:PCOM). This group of stocks’ market values resemble ACRX’s market value.
|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 4 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $7 million in ACRX’s case. Points International Ltd (NASDAQ:PCOM) is the most popular stock in this table. On the other hand Evogene Ltd. (NASDAQ:EVGN) is the least popular one with only 2 bullish hedge fund positions. AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ACRX is 50.6. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately ACRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ACRX were disappointed as the stock returned 7% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.