Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) to find out whether it was one of their high conviction long-term ideas.
Arena Pharmaceuticals, Inc. investors should be aware of a decrease in support from the world’s most elite money managers recently. At the end of this article we will also compare ARNA to other stocks, including Incontact Inc (NASDAQ:SAAS), Stock Building Supply Holdings Inc (NASDAQ:STCK), and Acacia Research Corporation (NASDAQ:ACTG) to get a better sense of its popularity.
At the moment there are a large number of metrics stock market investors can use to evaluate publicly traded companies. A duo of the less utilized metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite money managers can outclass the S&P 500 by a significant amount (see the details here).
Keeping this in mind, we’re going to go over the key action surrounding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
How have hedgies been trading Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
At the Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 8% from one quarter earlier. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Camber Capital Management, managed by Stephen DuBois, holds the number one position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Camber Capital Management has a $18.6 million position in the stock, comprising 1.6% of its 13F portfolio. The second largest stake is held by Deerfield Management, managed by James E. Flynn, which holds a $8.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions consist of Jim Simons’ Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.
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.