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 PharmAthene, Inc. (NYSEMKT:PIP).
PharmAthene, Inc. (NYSEMKT:PIP) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of September. At the end of this article we will also compare PIP to other stocks including Atlas Financial Holdings Inc (NASDAQ:AFH), Orion Marine Group, Inc. (NYSE:ORN), and Senomyx Inc. (NASDAQ:SNMX) 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.
Keeping this in mind, we’re going to take a peek at the key action surrounding PharmAthene, Inc. (NYSEMKT:PIP).
How have hedgies been trading PharmAthene, Inc. (NYSEMKT:PIP)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in PIP at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Phil Frohlich’s Prescott Group Capital Management has the biggest position in PharmAthene, Inc. (NYSEMKT:PIP), worth close to $23.1 million, amounting to 4.9% of its total 13F portfolio. Coming in second is Wilmot B. Harkey and Daniel Mack of Nantahala Capital Management, with a $9.3 million position; 1.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish comprise Sander Gerber’s Hudson Bay Capital Management, Matthew Drapkin and Steven R. Becker’s Becker Drapkin Management and Renaissance Technologies, one of the largest hedge funds in the world. We should note that two of these hedge funds (Nantahala Capital Management and Hudson Bay Capital Management) are 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.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks similar to PharmAthene, Inc. (NYSEMKT:PIP). These stocks are Atlas Financial Holdings Inc (NASDAQ:AFH), Orion Marine Group, Inc. (NYSE:ORN), Senomyx Inc. (NASDAQ:SNMX), and Gladstone Capital Corporation (NASDAQ:GLAD). This group of stocks’ market caps resemble PIP’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $41 million in PIP’s case. Atlas Financial Holdings Inc (NASDAQ:AFH) is the most popular stock in this table. On the other hand Gladstone Capital Corporation (NASDAQ:GLAD) is the least popular one with only 3 bullish hedge fund positions. PharmAthene, Inc. (NYSEMKT:PIP) 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 AFH might be a better candidate to consider taking a long position in.