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Should You Avoid Orexigen Therapeutics, Inc. (OREX)?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Orexigen Therapeutics, Inc. (NASDAQ:OREX) .

Orexigen Therapeutics, Inc. (NASDAQ:OREX) shareholders have witnessed a decrease in enthusiasm from smart money lately. There were 8 hedge funds in our database with OREX holdings at the end of September. At the end of this article we will also compare OREX to other stocks including Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), Cogentix Medical Inc (NASDAQ:CGNT), and MoSys Inc. (NASDAQ:MOSY) to get a better sense of its popularity.

Follow Orexigen Therapeutics Inc. (NASDAQ:OREXQ)

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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With all of this in mind, we’re going to take a look at the new action encompassing Orexigen Therapeutics, Inc. (NASDAQ:OREX).

What does the smart money think about Orexigen Therapeutics, Inc. (NASDAQ:OREX)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in OREX heading into this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

OREX Chart

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baupost Group, led by Seth Klarman, holds the largest position in Orexigen Therapeutics, Inc. (NASDAQ:OREX). Baupost Group has a $7.4 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Biotechnology Value Fund / BVF Inc, led by Mark Lampert, holding a $2.4 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions include Robert Pohly’s Samlyn Capital, William Leland Edwards’s Palo Alto Investors and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Orexigen Therapeutics, Inc. (NASDAQ:OREX) has encountered falling interest from hedge fund managers, we can see that there were a few funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning Robert Pohly’s Samlyn Capital was a seller, as the fund cut about $2.6 million worth of shares.

Let’s also examine hedge fund activity in other stocks similar to Orexigen Therapeutics, Inc. (NASDAQ:OREX). These stocks are Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), Cogentix Medical Inc (NASDAQ:CGNT), MoSys Inc. (NASDAQ:MOSY), and CAS Medical Systems Inc (NASDAQ:CASM). All of these stocks’ market caps are closest to OREX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
THLD 8 4611 -4
CGNT 6 9323 0
MOSY 4 1174 0
CASM 3 6937 -1

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $13 million in OREX’s case. Threshold Pharmaceuticals, Inc. (NASDAQ:THLD) is the most popular stock in this table. On the other hand CAS Medical Systems Inc (NASDAQ:CASM) is the least popular one with only 3 bullish hedge fund positions. Orexigen Therapeutics, Inc. (NASDAQ:OREX) is the most popular stock in this group. The stock could be worth a closer look.

Disclosure: None