Is ARDX A Good Stock To Buy Now According To Hedge Funds?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Ardelyx Inc (NASDAQ:ARDX) changed recently.

Is ARDX a good stock to buy now? Ardelyx Inc (NASDAQ:ARDX) was in 21 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. ARDX shareholders have witnessed a decrease in hedge fund interest lately. There were 24 hedge funds in our database with ARDX holdings at the end of June. Our calculations also showed that ARDX 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.

If you’d ask most investors, hedge funds are perceived as worthless, outdated investment tools of the past. While there are greater than 8000 funds with their doors open at present, Our researchers choose to focus on the top tier of this club, approximately 850 funds. Most estimates calculate that this group of people command most of all hedge funds’ total capital, and by shadowing their top stock picks, Insider Monkey has uncovered a number of investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

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 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. Now let’s take a look at the key hedge fund action surrounding Ardelyx Inc (NASDAQ:ARDX).

Do Hedge Funds Think ARDX Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in ARDX over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, RA Capital Management was the largest shareholder of Ardelyx Inc (NASDAQ:ARDX), with a stake worth $32.9 million reported as of the end of September. Trailing RA Capital Management was Rock Springs Capital Management, which amassed a stake valued at $26.7 million. Adage Capital Management, Redmile Group, and Marshall Wace LLP 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 683 Capital Partners allocated the biggest weight to Ardelyx Inc (NASDAQ:ARDX), around 0.87% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, dishing out 0.78 percent of its 13F equity portfolio to ARDX.

Since Ardelyx Inc (NASDAQ:ARDX) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedgies who sold off their full holdings heading into Q4. Interestingly, James A. Silverman’s Opaleye Management cut the largest investment of the 750 funds watched by Insider Monkey, valued at close to $3.3 million in stock. Chen Tianqiao’s fund, Shanda Asset Management, also dropped its stock, about $0.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ardelyx Inc (NASDAQ:ARDX) but similarly valued. We will take a look at Navigator Holdings Ltd (NYSE:NVGS), Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), AxoGen, Inc. (NASDAQ:AXGN), Applied Therapeutics, Inc. (NASDAQ:APLT), Brookdale Senior Living, Inc. (NYSE:BKD), Pacific Ethanol Inc (NASDAQ:PEIX), and WisdomTree Investments, Inc. (NASDAQ:WETF). This group of stocks’ market caps are similar to ARDX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVGS 16 30119 2
CCO 30 121256 3
AXGN 15 43436 3
APLT 8 100284 -6
BKD 20 181384 -4
PEIX 11 81327 8
WETF 22 34490 4
Average 17.4 84614 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $180 million in ARDX’s case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand Applied Therapeutics, Inc. (NASDAQ:APLT) is the least popular one with only 8 bullish hedge fund positions. Ardelyx Inc (NASDAQ:ARDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARDX is 56.7. 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 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 December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on ARDX as the stock returned 31% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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