Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Esperion Therapeutics, Inc. (NASDAQ:ESPR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of the third quarter of 2018. At the end of this article we will also compare ESPR to other stocks including Intra-Cellular Therapies Inc (NASDAQ:ITCI), K2M Group Holdings Inc (NASDAQ:KTWO), and Natus Medical Inc (NASDAQ:BABY) to get a better sense of its popularity.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to analyze the new hedge fund action encompassing Esperion Therapeutics, Inc. (NASDAQ:ESPR).
How have hedgies been trading Esperion Therapeutics, Inc. (NASDAQ:ESPR)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in ESPR heading into this year. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Esperion Therapeutics, Inc. (NASDAQ:ESPR) was held by Pentwater Capital Management, which reported holding $104.3 million worth of stock at the end of September. It was followed by Partner Fund Management with a $87.4 million position. Other investors bullish on the company included Point72 Asset Management, GLG Partners, and Sabby Capital.
Since Esperion Therapeutics, Inc. (NASDAQ:ESPR) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds who sold off their positions entirely heading into Q3. At the top of the heap, Ori Hershkovitz’s Nexthera Capital cut the biggest position of all the hedgies watched by Insider Monkey, worth about $11.3 million in stock. Rob Citrone’s fund, Discovery Capital Management, also said goodbye to its stock, about $9.2 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Esperion Therapeutics, Inc. (NASDAQ:ESPR). We will take a look at Intra-Cellular Therapies Inc (NASDAQ:ITCI), K2M Group Holdings Inc (NASDAQ:KTWO), Natus Medical Inc (NASDAQ:BABY), and Osisko Gold Royalties Ltd (NYSE:OR). All of these stocks’ market caps match ESPR’s market cap.
|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 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $239 million in ESPR’s case. K2M Group Holdings Inc (NASDAQ:KTWO) is the most popular stock in this table. On the other hand Osisko Gold Royalties Ltd (NYSE:OR) is the least popular one with only 10 bullish hedge fund positions. Esperion Therapeutics, Inc. (NASDAQ:ESPR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KTWO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.