One of the best ways that investors can try to decide which stocks will make for a good investment is to look at what the pros are doing. This can be done by examining a few official filings such as 13F, 13D, and 13G reports. 13F filings are done quarterly and show which positions hedge funds have taken. 13D and 13G reports are done more often but only when a fund has taken a position of at least 5%. Having said that let's take a look at 2 stocks which appear to be in the midst of hedge fund accumulation. The 2 stocks were chosen based on the following criteria:
- Market Capitalization Of At Least $250 Million
- Average Trading Volume Of At Least 500,000 Shares
- Hedge Fund Holds At Least 5% Of Company Shares
Acadia Pharmaceuticals (ACAD)
Acadia Pharmaceuticals is a biopharmaceutical company focused on small molecule drugs that address unmet medical needs in neurological and related central nervous system disorders. The company's flagship product is pimavanserin, which is a potential treatment for Parkinson's disease psychosis.
One of the top biotech hedge funds in the world, Baker Brothers, has recently raised their stake in Acadia. In fact, the fund roughly tripled their previous holdings and now owns just under 30% of Acadia. That is a massive investment and shows a lot of faith in Acadia. In total, their ownership stands at 15.6 million shares.
Acadia has had a heck of a stock run lately, largely on the back of their recent announcement that they would apply for FDA review of pimavanserin by the end of 2014, which was much sooner than expected.
The FDA concurred with Acadia that the company did not need to conduct another trial in order to apply.
Fundamentally speaking, Acadia is in pretty good shape as well. The company ended last year with $57.9 million, an increase of over $51 million from 2011. The company's short term investments was also strong at $50.07 million, giving the company a total of $108.6 million in current assets. That was significantly higher than 2011 when the company only had $32.1 million. Clearly the company will have sufficient operating capital to take the company through their FDA application. On the liabilities side, the company has no long term debt with the only significant liability being accounts payable which stands at $5.5 million, roughly the same amount as in 2011.
Medivation Inc. (MDVN)
Medivation Inc. is a biopharmaceutical company focused on the rapid development of small molecule drugs to treat serious diseases for which there are limited treatment options. The company is developing MDV3100 for multiple stages of advanced prostate cancer.
One of the leading funds, Adage Capital Partners, reported a 5.37% stake in Medivation on April 4, 2013. The stock closed at $48.75 on April 4 and now trades at just under $53 per share. Clearly a nice return for Adage Capital and for any investors wise enough to follow the fund.
Technically speaking, the stock has been extremely volatile as shown in the chart below.
It's been hard to get a sense of where the stock is headed although the stock has bounced nicely since the middle of March, rising about 20% during the past month.
Fundamentally speaking, the company appears to be in fine shape. Medivation ended 2012 with $71.6 million in cash, and $224.9 million in short term investments. Both the company's cash and short term investments increased from the prior year. Additionally, the company's total current assets stood at $344.2 million at the end of 2012, compared to just $168.2 million at the end of 2011. As the company attempts to build out its deep pipeline of potential treatment, this rise in current assets will be extremely useful in funding operations. Now the one trouble spot on the balance sheet is the increase in long-term debt. The company had no debt at the end of 2011 but at the end of 2012 has $196 million that it will need to pay off at some point. Hopefully the company is able to build out its products and the revenue stream can be used to start paying that down.
Investors can use hedge fund holding information as an extra tool in their investing methodology. Keep in mind though, it is still extremely important to analyze both the technical and fundamental aspects to ensure that a particular company is both a sound investment and that it is the right time to invest.