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Were Hedge Funds Right About Dumping Ardelyx Inc (ARDX)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Ardelyx Inc (NASDAQ:ARDX) based on that data and determine whether they were really smart about the stock.

Ardelyx Inc (NASDAQ:ARDX) has seen a decrease in support from the world’s most elite money managers of late. Our calculations also showed that ARDX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s go over the recent hedge fund action encompassing Ardelyx Inc (NASDAQ:ARDX).

How have hedgies been trading Ardelyx Inc (NASDAQ:ARDX)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARDX over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is ARDX A Good Stock To Buy?

Among these funds, RA Capital Management held the most valuable stake in Ardelyx Inc (NASDAQ:ARDX), which was worth $36.5 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $29.9 million worth of shares. Rock Springs Capital Management, Redmile Group, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 683 Capital Partners allocated the biggest weight to Ardelyx Inc (NASDAQ:ARDX), around 1.45% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, dishing out 1.18 percent of its 13F equity portfolio to ARDX.

Judging by the fact that Ardelyx Inc (NASDAQ:ARDX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedgies that elected to cut their positions entirely last quarter. Interestingly, Arsani William’s Logos Capital cut the largest position of the 750 funds watched by Insider Monkey, comprising close to $1.6 million in stock. Matthew L Pinz’s fund, Pinz Capital, also cut its stock, about $1.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Ardelyx Inc (NASDAQ:ARDX). We will take a look at Lantheus Holdings Inc (NASDAQ:LNTH), Loral Space & Communications Inc (NASDAQ:LORL), Preferred Bank (NASDAQ:PFBC), and LeMaitre Vascular Inc (NASDAQ:LMAT). This group of stocks’ market caps are closest to ARDX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LNTH 20 77954 4
LORL 19 223665 1
PFBC 7 24634 -4
LMAT 6 4580 -3
Average 13 82708 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $203 million in ARDX’s case. Lantheus Holdings Inc (NASDAQ:LNTH) is the most popular stock in this table. On the other hand LeMaitre Vascular Inc (NASDAQ:LMAT) is the least popular one with only 6 bullish hedge fund positions. Ardelyx Inc (NASDAQ:ARDX) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately ARDX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ARDX were disappointed as the stock returned 14.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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