Were Hedge Funds Right About Neurocrine Biosciences, Inc. (NBIX)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Neurocrine Biosciences, Inc. (NASDAQ:NBIX) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Neurocrine Biosciences, Inc. (NASDAQ:NBIX) was in 31 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 45. NBIX shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 32 hedge funds in our database with NBIX positions at the end of the second quarter. Our calculations also showed that NBIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a look at the new hedge fund action surrounding Neurocrine Biosciences, Inc. (NASDAQ:NBIX).

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

Do Hedge Funds Think NBIX Is A Good Stock To Buy Now?

At third quarter’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in NBIX over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the biggest position in Neurocrine Biosciences, Inc. (NASDAQ:NBIX). Renaissance Technologies has a $130.1 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is OrbiMed Advisors, holding a $114.3 million position; 1.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions comprise James E. Flynn’s Deerfield Management, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Christopher James’s Partner Fund Management. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Neurocrine Biosciences, Inc. (NASDAQ:NBIX), around 5.23% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, dishing out 2.44 percent of its 13F equity portfolio to NBIX.

Due to the fact that Neurocrine Biosciences, Inc. (NASDAQ:NBIX) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers that elected to cut their full holdings in the third quarter. Interestingly, Franklin Parlamis’s Aequim Alternative Investments dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $10.1 million in call options. Efrem Kamen’s fund, Pura Vida Investments, also dropped its call options, about $4.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Neurocrine Biosciences, Inc. (NASDAQ:NBIX). These stocks are Sunrun Inc (NASDAQ:RUN), Ascendis Pharma A/S (NASDAQ:ASND), Globe Life Inc. (NYSE:GL), Syneos Health, Inc. (NASDAQ:SYNH), Reliance Steel & Aluminum Co. (NYSE:RS), GXO Logistics Inc. (NYSE:GXO), and Crocs, Inc. (NASDAQ:CROX). This group of stocks’ market caps are closest to NBIX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RUN 37 1677910 -8
ASND 23 2827508 -6
GL 27 775771 -1
SYNH 33 474708 0
RS 24 346919 -3
GXO 27 1313274 27
CROX 37 1051423 -3
Average 29.7 1209645 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.7 hedge funds with bullish positions and the average amount invested in these stocks was $1210 million. That figure was $981 million in NBIX’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Ascendis Pharma A/S (NASDAQ:ASND) is the least popular one with only 23 bullish hedge fund positions. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NBIX is 53.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, NBIX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on NBIX were disappointed as the stock returned -17.6% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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