Were Hedge Funds Right About Loading Up On Mirati Therapeutics, Inc. (MRTX)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Mirati Therapeutics, Inc. (NASDAQ:MRTX) changed recently.

Mirati Therapeutics, Inc. (NASDAQ:MRTX) has seen an increase in hedge fund sentiment recently. Mirati Therapeutics, Inc. (NASDAQ:MRTX) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with MRTX positions at the end of the first quarter. Our calculations also showed that MRTX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to view the new hedge fund action surrounding Mirati Therapeutics, Inc. (NASDAQ:MRTX).

How are hedge funds trading Mirati Therapeutics, Inc. (NASDAQ:MRTX)?

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in MRTX a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Avoro Capital Advisors (venBio Select Advisor) was the largest shareholder of Mirati Therapeutics, Inc. (NASDAQ:MRTX), with a stake worth $489.4 million reported as of the end of June. Trailing Avoro Capital Advisors (venBio Select Advisor) was Perceptive Advisors, which amassed a stake valued at $316.4 million. Baker Bros. Advisors, OrbiMed Advisors, and Farallon Capital 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 Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 9.68% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to MRTX.

As industrywide interest jumped, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the largest position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). Point72 Asset Management had $21.3 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also initiated a $8.2 million position during the quarter. The other funds with new positions in the stock are Parvinder Thiara’s Athanor Capital, Karim Abbadi and Edward McBride’s Centiva Capital, and Greg Poole’s Echo Street Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Mirati Therapeutics, Inc. (NASDAQ:MRTX). These stocks are Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), Skechers USA Inc (NYSE:SKX), Invesco Ltd. (NYSE:IVZ), People’s United Financial, Inc. (NASDAQ:PBCT), First Industrial Realty Trust, Inc. (NYSE:FR), and Novavax, Inc. (NASDAQ:NVAX). This group of stocks’ market values resemble MRTX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $323 million. That figure was $1587 million in MRTX’s case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand Dada Nexus Limited (NASDAQ:DADA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Mirati Therapeutics, Inc. (NASDAQ:MRTX) is more popular among hedge funds. Our overall hedge fund sentiment score for MRTX is 88. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on MRTX as the stock returned 90.2% since the end of June (through 10/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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