Although a great movie, The Wolf of Wall Street left many people thinking penny stocks are somewhat ‘untouchable’. Now, it is true that the risk implied in such equities is higher than that of companies with larger market capitalizations; but so is the potential reward. In order to balance these two profiles, risk and reward, investors must do their due diligence, taking a detailed look into a business, its fundamentals, and its prospects in its industry and given the competition it faces. However, an everyday investor doesn’t have the same resources and capabilities to analyze different publicly-traded companies that hedge funds do. This is why it is a good idea to see what stocks hedge funds like the most and try to imitate some of their bullish moves in an attempt to reap market-beating returns. In this article we’ll reveal the five most popular healthcare stocks among the group of elite hedge funds that we track which are currently trading for less than a dollar per share.
In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).
Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS)
Let’s start with Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS), which had nine hedge funds in our system invested in it at the end of the first quarter of 2016, up by one quarter-over-quarter. Their combined stakes, valued at roughly $14.7 million as of March 31, represented almost one-third of the company’s float.
Jeffrey Jay and David Kroin’s Great Point Partners held the largest stake in the company among institutional investors, amounting to 8.25 million shares worth almost $4.5 million at the end of the first quarter. Another large position was held by William Leland Edwards’ Palo Alto Investors, which owned 6.97 million shares. Finally, the company counted the support of healthcare-focused fund Baker Bros. Advisors. The firm, run by Julian Baker and Felix Baker, disclosed ownership of 4.45 million shares of the micro-cap, which reported a first quarter net loss of $0.12 per share, in-line with the consensus estimate, on revenue of $640,000, down by 24.7% year-over-year, and $360,000 below expectations. Shares of Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) are down more than 35% year-to-date and currently trade at $0.57.
Threshold Pharmaceuticals, Inc. (NASDAQ:THLD)
Next up is Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), which is down by 1.65% since the beginning of the year, and whose shares trade at $0.47. The FDA said earlier this week that the results from the company’s Phase 3 clinical trial, EMR200592-001, and its Phase 2 study, TH-CR-404, did not provide adequate efficacy data to support a New Drug Application (NDA) for the approval of evofosfamide as a treatment for patients with locally advanced unresectable or metastatic pancreatic adenocarcinoma previously untreated with chemotherapy.
Among the funds that we track, nine were long Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) at the end of the first quarter and held about 15.7% of the company’s shares. The largest institutional investor was one of Insider Monkey’s favorites, due to its outstanding performance; Michael Castor’s Sio Capital, which disclosed ownership of 3.95 million shares, or about $1.8 million in stock, as of March 31. Phill Gross and Robert Atchinson’s Adage Capital Management owned 3.5 million shares, while Jim Simons’ Renaissance Technologies owned 1.01 million shares.
We run through three more popular healthcare penny stocks on the next page.