Is Innate Pharma S.A. (IPHA) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Innate Pharma S.A. (NASDAQ:IPHA).

Hedge fund interest in Innate Pharma S.A. (NASDAQ:IPHA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare IPHA to other stocks including Canaan Inc. (NASDAQ:CAN), Genesis Energy, L.P. (NYSE:GEL), and B. Riley Financial, Inc. (NASDAQ:RILY) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the recent hedge fund action surrounding Innate Pharma S.A. (NASDAQ:IPHA).

How are hedge funds trading Innate Pharma S.A. (NASDAQ:IPHA)?

Heading into the second quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in IPHA a year ago. 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, EcoR1 Capital, managed by Oleg Nodelman, holds the most valuable position in Innate Pharma S.A. (NASDAQ:IPHA). EcoR1 Capital has a $29.8 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is Rubric Capital Management, managed by David Rosen, which holds a $6.2 million position; 1% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions comprise Phill Gross and Robert Atchinson’s Adage Capital Management, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Innate Pharma S.A. (NASDAQ:IPHA), around 3.12% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, setting aside 0.98 percent of its 13F equity portfolio to IPHA.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s now review hedge fund activity in other stocks similar to Innate Pharma S.A. (NASDAQ:IPHA). We will take a look at Canaan Inc. (NASDAQ:CAN), Genesis Energy, L.P. (NYSE:GEL), B. Riley Financial, Inc. (NASDAQ:RILY), and Vectrus Inc (NYSE:VEC). This group of stocks’ market caps resemble IPHA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAN 3 740 1
GEL 4 7087 3
RILY 14 71858 -2
VEC 15 55085 2
Average 9 33693 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $40 million in IPHA’s case. Vectrus Inc (NYSE:VEC) is the most popular stock in this table. On the other hand Canaan Inc. (NASDAQ:CAN) is the least popular one with only 3 bullish hedge fund positions. Innate Pharma S.A. (NASDAQ:IPHA) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately IPHA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IPHA investors were disappointed as the stock returned -2.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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