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. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. 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 Paratek Pharmaceuticals Inc (NASDAQ:PRTK).
Paratek Pharmaceuticals Inc (NASDAQ:PRTK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of September. At the end of this article we will also compare PRTK to other stocks including Veru Inc. (NASDAQ:VERU), Pixelworks, Inc. (NASDAQ:PXLW), and Concert Pharmaceuticals Inc (NASDAQ:CNCE) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the recent hedge fund action regarding Paratek Pharmaceuticals Inc (NASDAQ:PRTK).
What have hedge funds been doing with Paratek Pharmaceuticals Inc (NASDAQ:PRTK)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRTK over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baupost Group was the largest shareholder of Paratek Pharmaceuticals Inc (NASDAQ:PRTK), with a stake worth $10.3 million reported as of the end of September. Trailing Baupost Group was Armistice Capital, which amassed a stake valued at $6.8 million. Arbiter Partners Capital Management, Highland Capital Management, and Roumell Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Roumell Asset Management allocated the biggest weight to Paratek Pharmaceuticals Inc (NASDAQ:PRTK), around 7.69% of its 13F portfolio. Arbiter Partners Capital Management is also relatively very bullish on the stock, earmarking 0.87 percent of its 13F equity portfolio to PRTK.
Due to the fact that Paratek Pharmaceuticals Inc (NASDAQ:PRTK) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies who sold off their entire stakes heading into Q4. It’s worth mentioning that John Orrico’s Water Island Capital cut the largest stake of the 750 funds tracked by Insider Monkey, worth close to $0.7 million in stock. Renaissance Technologies, also cut its stock, about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Paratek Pharmaceuticals Inc (NASDAQ:PRTK) but similarly valued. These stocks are Veru Inc. (NASDAQ:VERU), Pixelworks, Inc. (NASDAQ:PXLW), Concert Pharmaceuticals Inc (NASDAQ:CNCE), and Pioneer Bancorp, Inc. (NASDAQ:PBFS). This group of stocks’ market caps match PRTK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VERU | 5 | 4526 | 2 |
| PXLW | 9 | 7038 | 2 |
| CNCE | 12 | 21376 | -1 |
| PBFS | 6 | 4932 | 6 |
| Average | 8 | 9468 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $36 million in PRTK’s case. Concert Pharmaceuticals Inc (NASDAQ:CNCE) is the most popular stock in this table. On the other hand Veru Inc. (NASDAQ:VERU) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Paratek Pharmaceuticals Inc (NASDAQ:PRTK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PRTK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRTK were disappointed as the stock returned -32.2% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
