We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified ARNA as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. These stocks are Incontact Inc (NASDAQ:SAAS), Stock Building Supply Holdings Inc (NASDAQ:STCK), Acacia Research Corporation (NASDAQ:ACTG), and DTS Inc. (NASDAQ:DTSI). All of these stocks’ market caps resemble ARNA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $36 million in ARNA’s case. Incontact Inc (NASDAQ:SAAS) is the most popular stock in this table, while Stock Building Supply Holdings Inc (NASDAQ:STCK) is the least popular one with only 11 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) 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. In this regard SAAS might be a better candidate to consider a long position.