Is Ocera Therapeutics Inc (OCRX) A Good Stock To Buy?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Ocera Therapeutics Inc (NASDAQ:OCRX) .

Is Ocera Therapeutics Inc (NASDAQ:OCRX) ready to rally soon? Hedge funds are actually in a pessimistic mood. The number of bullish hedge fund bets slashed by1 recently. There were 10 hedge funds in our database with OCRX 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 Trilogy Metals Inc (NYSEMKT:TMQ), Capricor Therapeutics Inc (NASDAQ:CAPR), and Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC) to gather more data points.

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.

Now, we’re going to go over the new action regarding Ocera Therapeutics Inc (NASDAQ:OCRX).

Hedge fund activity in Ocera Therapeutics Inc (NASDAQ:OCRX)

Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards OCRX over the last 5 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Great Point Partners, led by Jeffrey Jay and David Kroin, holds the number one position in Ocera Therapeutics Inc (NASDAQ:OCRX). Great Point Partners has a $5.2 million position in the stock, comprising 1.3% of its 13F portfolio. On Great Point Partners’s heels is Daniel Gold of QVT Financial, with a $2.3 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism contain Anders Hove and Bong Koh’s VHCP Management, James E. Flynn’s Deerfield Management and Millennium Management ,one of the 10 largest hedge funds in the world. 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.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Ghost Tree Capital. 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 OCRX as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks similar to Ocera Therapeutics Inc (NASDAQ:OCRX). These stocks are Trilogy Metals Inc (NYSEMKT:TMQ), Capricor Therapeutics Inc (NASDAQ:CAPR), Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC), and bebe stores, inc. (NASDAQ:BEBE). This group of stocks’ market values are similar to OCRX’s market value.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $15 million in OCRX’s case. Trilogy Metals Inc (NYSEMKT:TMQ) is the most popular stock in this table. On the other hand Capricor Therapeutics Inc (NASDAQ:CAPR) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Ocera Therapeutics Inc (NASDAQ:OCRX) 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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Disclosure: None