Should You Avoid Atara Biotherapeutics Inc (ATRA)?

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Nina Todic

Updated Fri, Dec 21, 2018, 9:23 PM

We can judge whether Atara Biotherapeutics Inc (NASDAQ:ATRA) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, research shows that these picks historically outperformed the market when we factor in known risk factors.

Atara Biotherapeutics Inc (NASDAQ:ATRA) investors should be aware of a decrease in hedge fund interest lately. ATRA was in 12 hedge funds' portfolios at the end of the third quarter of 2018. There were 14 hedge funds in our database with ATRA holdings at the end of the previous quarter. Our calculations also showed that atra isn't among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

We're going to take a gander at the fresh hedge fund action encompassing Atara Biotherapeutics Inc (NASDAQ:ATRA).

Hedge fund activity in Atara Biotherapeutics Inc (NASDAQ:ATRA)

At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ATRA over the last 13 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Baupost Group was the largest shareholder of Atara Biotherapeutics Inc (NASDAQ:ATRA), with a stake worth $258.6 million reported as of the end of September. Trailing Baupost Group was Redmile Group, which amassed a stake valued at $174.4 million. Bridger Management, Camber Capital Management, and Driehaus Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Since Atara Biotherapeutics Inc (NASDAQ:ATRA) has experienced falling interest from hedge fund managers, it's easy to see that there is a sect of hedgies that elected to cut their positions entirely in the third quarter. It's worth mentioning that Israel Englander's Millennium Management cut the largest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $3.7 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund said goodbye to about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Atara Biotherapeutics Inc (NASDAQ:ATRA). These stocks are Camping World Holdings, Inc. (NYSE:CWH), FBL Financial Group, Inc. (NYSE:FFG), Innospec Inc. (NASDAQ:IOSP), and Kaman Corporation (NYSE:KAMN). This group of stocks' market caps match ATRA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWH,17,157540,0 FFG,4,8943,-1 IOSP,12,69551,-1 KAMN,20,320855,4 Average,13.25,139222,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $634 million in ATRA's case. Kaman Corporation (NYSE:KAMN) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 4 bullish hedge fund positions. Atara Biotherapeutics Inc (NASDAQ:ATRA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard KAMN might be a better candidate to consider a long position.

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

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