Izzy Englander of the $34 billion Millennium Management fund has displayed a bullish sentiment on three intriguing stock picks in Q2, according to 13F forms filed with the SEC. He displayed a bullish sentiment on Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Sarepta Therapeutics Inc (NASDAQ:SRPT) and Insmed Incorporated (NASDAQ:INSM).
Englander, who has a personal fortune of over $5 billion, built up his fortune from humble beginnings. The son of two Polish immigrants, Englander founded hedge fund firm Millennium Management in 1989 with just $35 million from friends and family. Now the fund has 2,200 employees. It says its approach is to empower trading teams to trade in specialized areas with limited risk exposure. The firm says:
“We prefer trading teams that produce small gains on winning days and smaller losses on losing days. Our goal is to have more winning days than losing ones. We encourage our trading teams to pass on opportunities for outsized gains if they are accompanied by the risk of large losses.”
Unlike other hedge funds, Millennium doesn’t charge fixed fees and makes money only when investors also profit. The fund has outperformed its competitors even generating double digit returns in recent years. However 2016 was a very poor year for the fund with returns of only 3.4%. Will the fund perform better this year? Only time will tell. For now let’s dig down into these three impressive stock moves:
Kratos Defense & Security Solutions, Inc
In Q2, Englander purchased an additional 1,264,114 shares in Kratos, a small specialized national security company. Following the 73% increase, the fund holds a total of over 3 million shares in KTOS. This holding has a reported value of $20.7 million.
And the holding’s value is increasing as Kratos shares have soared by over 20% in August. The move may come as a surprise given that Kratos plunged by 10% in July following its second quarter earnings report. However, Kratos has worked hard to restore market confidence in its ability to drive new business. To this end, the company has released a slew of press releases setting out new contract wins totalling about $44 million (6% of total revenue). For example on August 7, Kratos revealed that it had been awarded a $23 million radar system contract to support a strategic surveillance radar system.
While this is not enough to completely allay worries, it is encouraging. The crucial breakpoint for the company will now come in its next, third quarter, earnings reports where Kratos will have to reveal whether this trend is sustainable. Kratos says Q3 results will be ‘very, very strong’ leading into 2018 profitability, but if it does not deliver then share prices are unlikely to stay at these elevated levels for very long.
Overall the stock has a cautiously optimistic Moderate Buy analyst consensus rating. TipRanks reveals that in the last three months, the stock has received 3 buy ratings and just 1 hold rating. Due to the recent spike in prices, the average analyst price target now represents a -1% downside from the current share price.
Sarepta Therapeutics Inc
In the second quarter, Englander demonstrated great confidence in the outlook of Sarepta Therapeutics. He ramped up the fund’s holding in the stock by a whopping 912%. The new holding, increased by 1,226,065 shares, has a reported value of $45.86 million.
And no doubt Englander is now celebrating this decision. Shares in Sarepta are spiking by 11% on September 6 after the biopharma announced positive drug study results. Sarepta is developing an experimental gene mutation treatment for Duchenne muscular dystrophy (DMD). DMD is a particularly severe type of progressive muscular weakness that leaves sufferers with a drastically reduced average life expectancy of under 30.
Sarepta’s new treatment seeks to help sufferers with a specific genetic mutation affecting about 8% of DMD patients. The drug, golodirsen, was tested on 25 boys with the disease who have ‘confirmed deletions of the DMD gene amenable to skipping exon 53’. The Phase 1/2 study included biopsies of the bicep muscle at baseline and on-treatment at the Part 2 Week 48 time point.
The results showed improvement in dystrophin protein: “All treated boys showed the anticipated exon skipping after treatment and this resulted in a mean increase of dystrophin protein, as measured by Western blot, from 0.095 percent at baseline to 1.019 percent of normal after at least one-year of treatment with golodirsen” said Francesco Muntoni, principal investigator for this study and Pediatric Neurologist at Great Ormond St Hospital.
Analysts have a Strong Buy consensus rating on Sarepta which already has one DMD drug pending approval, Exondys 51. This drug is designed to treat about 13% of DMD patients. In the last three months, the stock has received 10 buy ratings and 1 hold rating. Meanwhile, the average analyst price target of $65 stands at an impressive upside of over 58% from the current share price.
Englander initiated a new position in this exploding rare disease biotech stock in Q2. He snapped up 13,592 INSM shares valued at $233 million. This was undoubtedly a good call. On September 5 shares of Insmed leaped by an incredible 110%. The move came after Insmed announced positive results from its long-awaited Phase 3 CONVERT study into the treatment of a rare bacterial lung disease called nontuberculous mycobacteria (NTM). NTM, which develops from bacteria found in soil and water, can cause scarring and damage to the lungs.
Insmed found that including its inhaled antibiotic, ALIS, to guideline-based therapy (GBT) had a meaningful impact. In particular, adding ALIS eliminated evidence of NTM lung disease caused by MAC in sputum by month 6 in 29% of patients, versus 9% of patients on GBT alone. While the primary endpoints were better than expected, the secondary endpoints were less positive. However this should not affect the drug’s regulatory approval prospects. Indeed, Insmed will now seek accelerated approval for the drug, which has already been given breakthrough therapy designation by the US’s Food and Drug Administration (FDA).
On the news, INSM’s chief medical officer Dr. Paul Streck commented: “We consider these compelling top-line data to be a remarkable accomplishment in a rare disease state with no currently approved therapies. We are particularly encouraged by the consistency of these data when compared with our Phase 2 study results and look forward to additional data as the CONVERT study continues over the next two years.”
Overall the stock has a very bullish Strong Buy rating on TipRanks. In fact, in the last three months the stock has received six back-to-back buy ratings from analysts. In terms of average analyst price target, analysts are forecasting 14% upside for the stock over the next 12 months. Baird analyst Brian Skorney raised his price target on Insmed to $32 from $23 following the NTM results because the primary endpoints were better than expected.