Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
Is Merrimack Pharmaceuticals Inc (NASDAQ:MACK) undervalued? The smart money is categorically getting more optimistic. The number of long hedge fund positions that are disclosed in regulatory 13F filings advanced by 1 lately. There were 11 hedge funds in our database with MACK holdings at the end of the previous quarter. 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 iKang Healthcare Group Inc (ADR) (NASDAQ:KANG), Foundation Medicine Inc (NASDAQ:FMI), and Independent Bank Group Inc (NASDAQ:IBTX) to gather more data points.
Keeping this in mind, let’s view the latest action regarding Merrimack Pharmaceuticals Inc (NASDAQ:MACK).
How have hedgies been trading Merrimack Pharmaceuticals Inc (NASDAQ:MACK)?
Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MACK over the last 5 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mitchell Blutt’s Consonance Capital Management has the biggest position in Merrimack Pharmaceuticals Inc (NASDAQ:MACK), worth close to $37.8 million, corresponding to 3.6% of its total 13F portfolio. Sitting at the No. 2 spot is Great Point Partners, led by Jeffrey Jay and David Kroin, holding a $15.5 million position; 4% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions consist of Israel Englander’s Millennium Management one of the largest hedge funds in the world, Dmitry Balyasny’s Balyasny Asset Management and David Kowitz and Sheldon Kasowitz’s Indus Capital. We should note that Indus Capital is 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, specific money managers have jumped into Merrimack Pharmaceuticals Inc (NASDAQ:MACK) headfirst. The other funds with new positions in the stock are Indus Capital, George McCabe’s Portolan Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Merrimack Pharmaceuticals Inc (NASDAQ:MACK) but similarly valued. These stocks are iKang Healthcare Group Inc (ADR) (NASDAQ:KANG), Foundation Medicine Inc (NASDAQ:FMI), Independent Bank Group Inc (NASDAQ:IBTX), and Apptio Inc (NASDAQ:APTI). This group of stocks’ market caps are closest to MACK’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 $32 million. That figure was $82 million in MACK’s case. Apptio Inc (NASDAQ:APTI) is the most popular stock in this table. On the other hand Independent Bank Group Inc (NASDAQ:IBTX) is the least popular one with only 9 bullish hedge fund positions. Merrimack Pharmaceuticals Inc (NASDAQ:MACK) 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 APTI might be a better candidate to consider taking a long position in.