Were Hedge Funds Right About Ligand Pharmaceuticals Inc. (LGND)?

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 Ligand Pharmaceuticals Inc. (NASDAQ:LGND) based on that data and determine whether they were really smart about the stock.

Is Ligand Pharmaceuticals Inc. (NASDAQ:LGND) a buy right now? Prominent investors were taking a bullish view. The number of bullish hedge fund bets rose by 4 lately. Our calculations also showed that LGND 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Tim Lynch of Stonepine Capital

Timothy P. Lynch of Stonepine Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the recent hedge fund action encompassing Ligand Pharmaceuticals Inc. (NASDAQ:LGND).

How have hedgies been trading Ligand Pharmaceuticals Inc. (NASDAQ:LGND)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LGND over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ligand Pharmaceuticals Inc. (NASDAQ:LGND) was held by Cardinal Capital, which reported holding $71.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $43.6 million position. Other investors bullish on the company included Dorset Management, Ikarian Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Ligand Pharmaceuticals Inc. (NASDAQ:LGND), around 16.2% of its 13F portfolio. Stonepine Capital is also relatively very bullish on the stock, earmarking 12.38 percent of its 13F equity portfolio to LGND.

Now, some big names have jumped into Ligand Pharmaceuticals Inc. (NASDAQ:LGND) headfirst. Stonepine Capital, managed by Timothy P. Lynch, created the most outsized position in Ligand Pharmaceuticals Inc. (NASDAQ:LGND). Stonepine Capital had $11.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2 million investment in the stock during the quarter. The other funds with brand new LGND positions are Michael Rockefeller and KarláKroeker’s Woodline Partners, Lawrence Hawkins’s Prosight Capital, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s also examine hedge fund activity in other stocks similar to Ligand Pharmaceuticals Inc. (NASDAQ:LGND). These stocks are MicroStrategy Incorporated (NASDAQ:MSTR), Innoviva, Inc. (NASDAQ:INVA), Atrion Corporation (NASDAQ:ATRI), and Tri Pointe Group Inc (NYSE:TPH). This group of stocks’ market values are similar to LGND’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSTR 18 63901 -7
INVA 19 252057 0
ATRI 12 68214 -3
TPH 27 142074 -5
Average 19 131562 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $242 million in LGND’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Atrion Corporation (NASDAQ:ATRI) is the least popular one with only 12 bullish hedge fund positions. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LGND as the stock returned 53.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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