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Were Hedge Funds Right About Betting On Lexicon Pharmaceuticals, Inc. (LXRX)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX).

Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) was in 13 hedge funds’ portfolios at the end of September. LXRX investors should be aware of an increase in hedge fund sentiment in recent months. There were 11 hedge funds in our database with LXRX holdings at the end of the previous quarter. Our calculations also showed that LXRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most stock holders, hedge funds are viewed as worthless, old investment tools of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers look at the upper echelon of this group, around 750 funds. It is estimated that this group of investors control bulk of the hedge fund industry’s total asset base, and by shadowing their first-class stock picks, Insider Monkey has deciphered numerous investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the latest hedge fund action surrounding Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX).

How have hedgies been trading Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the second quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in LXRX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) was held by Millennium Management, which reported holding $3.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $2 million position. Other investors bullish on the company included Point72 Asset Management, Citadel Investment Group, and ExodusPoint Capital. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), around 0.16% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to LXRX.

Consequently, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the most outsized position in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX). Point72 Asset Management had $1.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.4 million investment in the stock during the quarter. The other funds with brand new LXRX positions are Cliff Asness’s AQR Capital Management, Donald Sussman’s Paloma Partners, and David Harding’s Winton Capital Management.

Let’s check out hedge fund activity in other stocks similar to Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX). These stocks are Motorcar Parts of America, Inc. (NASDAQ:MPAA), Sientra Inc (NASDAQ:SIEN), Howard Bancorp Inc (NASDAQ:HBMD), and Red River Bancshares, Inc. (NASDAQ:RRBI). This group of stocks’ market valuations are similar to LXRX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPAA 8 60972 -5
SIEN 16 103194 -3
HBMD 3 16817 1
RRBI 3 5155 0
Average 7.5 46535 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $9 million in LXRX’s case. Sientra Inc (NASDAQ:SIEN) is the most popular stock in this table. On the other hand Howard Bancorp Inc (NASDAQ:HBMD) is the least popular one with only 3 bullish hedge fund positions. Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on LXRX as the stock returned 17.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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