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 elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze XenoPort, Inc. (NASDAQ:XNPT).
XenoPort, Inc. (NASDAQ:XNPT)’s stock plunged by 43% in the third quarter, prompting some investors to sell. In this way, among the funds we track, the number of XenoPort shareholders went down by two during the third quarter and XNPT was in 14 hedge funds’ portfolios at the end of September. However, 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 Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Harte-Hanks, Inc. (NYSE:HHS), and Cambium Learning Group, Inc. (NASDAQ:ABCD) to gather more data points.
Follow Xenoport Inc (NASDAQ:XNPT)
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In the 21st century investor’s toolkit there are dozens of metrics market participants put to use to size up stocks. Two of the most useful metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best money managers can outpace the broader indices by a significant margin (see the details here).
Keeping this in mind, we’re going to view the latest action surrounding XenoPort, Inc. (NASDAQ:XNPT).
How have hedgies been trading XenoPort, Inc. (NASDAQ:XNPT)?
At the Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 13% from the second quarter. Among these funds, Julian Baker and Felix Baker’s Baker Bros. Advisors has the largest position in XenoPort, Inc. (NASDAQ:XNPT), worth close to $22.6 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is OrbiMed Advisors, led by Samuel Isaly, holding a $20 million position; 0.2% of its 13F portfolio is allocated to the stock. The remaining members of the smart money that are bullish include James E. Flynn’s Deerfield Management, Steven Boyd’s Armistice Capital, and Ken Griffin’s Citadel Investment Group.
Since XenoPort, Inc. (NASDAQ:XNPT) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of fund managers who were dropping their entire stakes heading into Q4. Intriguingly, Jeffrey Jay and David Kroin’s Great Point Partners dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth about $3 million in stock, and Jim Simons’ Renaissance Technologies was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to XenoPort, Inc. (NASDAQ:XNPT). These stocks are Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Harte-Hanks, Inc. (NYSE:HHS), Cambium Learning Group, Inc. (NASDAQ:ABCD), and West Marine, Inc. (NASDAQ:WMAR). This group of stocks’ market valuations resemble XNPT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RIGL | 17 | 48415 | 1 |
| HHS | 14 | 12261 | 3 |
| ABCD | 4 | 4644 | 1 |
| WMAR | 6 | 29696 | -2 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $24 million, compared to $84 million in XNPT’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table with 17 funds reporting long positions. On the other hand Cambium Learning Group, Inc. (NASDAQ:ABCD) is the least popular one with only 4 funds holding shares. XenoPort, Inc. (NASDAQ:XNPT) 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 RIGL might be a better candidate to consider a long position.
