Is SBBP A Good Stock To Buy Now?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Strongbridge Biopharma plc (NASDAQ:SBBP) changed recently.

Is SBBP a good stock to buy now? Strongbridge Biopharma plc (NASDAQ:SBBP) was in 13 hedge funds’ portfolios at the end of September. The all time high for this statistic is 20. SBBP investors should be aware of an increase in hedge fund interest of late. There were 10 hedge funds in our database with SBBP positions at the end of the second quarter. Our calculations also showed that SBBP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 66 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.

Tim Lynch of Stonepine Capital

Timothy P. Lynch of Stonepine Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s go over the key hedge fund action encompassing Strongbridge Biopharma plc (NASDAQ:SBBP).

Do Hedge Funds Think SBBP Is A Good Stock To Buy Now?

At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBBP over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, OrbiMed Advisors was the largest shareholder of Strongbridge Biopharma plc (NASDAQ:SBBP), with a stake worth $7.3 million reported as of the end of September. Trailing OrbiMed Advisors was Ikarian Capital, which amassed a stake valued at $7.1 million. Stonepine Capital, 683 Capital Partners, and Renaissance Technologies 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 Stonepine Capital allocated the biggest weight to Strongbridge Biopharma plc (NASDAQ:SBBP), around 4.2% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to SBBP.

Consequently, key hedge funds were breaking ground themselves. OrbiMed Advisors, initiated the most outsized position in Strongbridge Biopharma plc (NASDAQ:SBBP). OrbiMed Advisors had $7.3 million invested in the company at the end of the quarter. Timothy P. Lynch’s Stonepine Capital also made a $4 million investment in the stock during the quarter. The other funds with new positions in the stock are Warren Lammert’s Granite Point Capital, Michael Gelband’s ExodusPoint Capital, and Andre F. Perold’s HighVista Strategies.

Let’s now take a look at hedge fund activity in other stocks similar to Strongbridge Biopharma plc (NASDAQ:SBBP). We will take a look at Tanzanian Gold Corporation (NYSE:TRX), Fonar Corporation (NASDAQ:FONR), BELLUS Health Inc. (NASDAQ:BLU), Exagen Inc. (NASDAQ:XGN), Bassett Furniture Industries Inc. (NASDAQ:BSET), BCB Bancorp, Inc. (NASDAQ:BCBP), and Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA). This group of stocks’ market valuations are closest to SBBP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRX 2 189 0
FONR 4 10926 -2
BLU 8 27150 -9
XGN 1 1 0
BSET 5 23360 -4
BCBP 3 12669 -1
IEA 7 16703 0
Average 4.3 13000 -2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $32 million in SBBP’s case. BELLUS Health Inc. (NASDAQ:BLU) is the most popular stock in this table. On the other hand Exagen Inc. (NASDAQ:XGN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Strongbridge Biopharma plc (NASDAQ:SBBP) is more popular among hedge funds. Our overall hedge fund sentiment score for SBBP is 77.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on SBBP as the stock returned 32.9% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Follow Strongbridge Biopharma Plc

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