Is Pacific Biosciences of California (PACB) a Good Stock to Buy?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Pacific Biosciences of California (NASDAQ:PACB).

Pacific Biosciences of California (NASDAQ:PACB) has experienced a decrease in enthusiasm from smart money lately. More specifically, during the third quarter, the number of investors from our database long the stock declined to 17 from 22. At the end of this article we will also compare PACB to other stocks including Merrimack Pharmaceuticals Inc (NASDAQ:MACK), iKang Healthcare Group Inc (ADR) (NASDAQ:KANG), and Foundation Medicine Inc (NASDAQ:FMI) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, we’re going to take a look at the latest action surrounding Pacific Biosciences of California (NASDAQ:PACB).

What does the smart money think about Pacific Biosciences of California (NASDAQ:PACB)?

Heading into the fourth quarter of 2016, a total of 17 funds tracked by Insider Monkey were bullish on this stock, down by 23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PACB over the last five quarters. So, let’s review 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, Lee Ainslie’s Maverick Capital holds the most valuable position in Pacific Biosciences of California (NASDAQ:PACB) which has an $81.5 million position in the stock, comprising 1% of its 13F portfolio. The second most bullish fund is Roberto Mignone’s Bridger Management holding a $44.5 million position; 3% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain William C. Martin’s Raging Capital Management, Ken Griffin’s Citadel Investment Group, and Millennium Management, one of the 10 largest funds in the world. We should note that Raging Capital Management 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.

Because Pacific Biosciences of California (NASDAQ:PACB) has faced bearish sentiment from the smart money, it’s easy to see that there was a specific group of hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Mitchell Blutt’s Consonance Capital Management dumped the largest stake of all the hedgies tracked by Insider Monkey, worth about $7.8 million in stock. Ken Grossman and Glen Schneider’s fund, SG Capital Management, also dumped its stock, about $1.9 million worth.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pacific Biosciences of California (NASDAQ:PACB) but similarly valued. We will take a look at Merrimack Pharmaceuticals Inc (NASDAQ:MACK), iKang Healthcare Group Inc (ADR) (NASDAQ:KANG), Foundation Medicine Inc (NASDAQ:FMI), and Independent Bank Group Inc (NASDAQ:IBTX). This group of stocks’ market valuations match PACB’s market valuation.

As you can see these stocks had an average of 11 funds with bullish positions and the average amount invested in these stocks was $50 million, which is lower than the $197 million figure in PACB’s case. Merrimack Pharmaceuticals Inc (NASDAQ:MACK) 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 nine funds having reported long positions. Compared to these stocks Pacific Biosciences of California (NASDAQ:PACB) 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.

Disclosure: None