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Is Ignyta Inc (RXDX) A Good Stock To Buy?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

In this article, we are going to take a closer look at Ignyta Inc (NASDAQ:RXDX), whose shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged and the stock was included in the equity portfolios of 16 hedge funds from our database at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Safeguard Scientifics, Inc (NYSE:SFE), Kandi Technolgies Corp. (NASDAQ:KNDI), and Selecta Biosciences Inc (NASDAQ:SELB) to gather more data points.

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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Now, let’s take a gander at the key action regarding Ignyta Inc (NASDAQ:RXDX).

What does the smart money think about Ignyta Inc (NASDAQ:RXDX)?

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RXDX over the last five 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.
According to Insider Monkey’s hedge fund database, Kevin C. Tang’s Tang Capital Management has the most valuable position in Ignyta Inc (NASDAQ:RXDX), worth close to $25 million, comprising 10.4% of its total 13F portfolio. Sitting at the No. 2 spot is Great Point Partners, led by Jeffrey Jay and David Kroin, which holds a $21.9 million position; 5.6% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism contain Kevin Kotler’s Broadfin Capital, Steven Boyd’s Armistice Capital and Alan Frazier’s Frazier Healthcare Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cut their entire stakes in the stock during the third quarter. Intriguingly, Ori Hershkovitz’s Nexthera Capital cut the biggest position of all the investors watched by Insider Monkey, valued at close to $1.3 million in stock, and Philip Hempleman’s Ardsley Partners was right behind this move, as the fund dropped about $0.1 million worth of shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ignyta Inc (NASDAQ:RXDX) but similarly valued. These stocks are Safeguard Scientifics, Inc (NYSE:SFE), Kandi Technolgies Corp. (NASDAQ:KNDI), Selecta Biosciences Inc (NASDAQ:SELB), and Sierra Bancorp (NASDAQ:BSRR). This group of stocks’ market valuations are similar to RXDX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFE 5 3546 -1
KNDI 3 741 2
SELB 5 36428 -2
BSRR 1 3003 -2

As you can see these stocks had an average of four funds with bullish positions and the average amount invested in these stocks was $11 million, versus $94 million in RXDX’s case. Safeguard Scientifics, Inc (NYSE:SFE) is the most popular stock in this table. On the other hand Sierra Bancorp (NASDAQ:BSRR) is the least popular one with only one fund holding shares. Compared to these stocks Ignyta Inc (NASDAQ:RXDX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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