Insider Monkey tracks nearly 400 hedge funds and prominent investors like Warren Buffett and Bruce Berkowitz to gain intelligence from their transactions. One of lists we prepare in this context is the most popular stocks in each sector. Hedge funds’ most popular stocks have historically outperformed the market by a small margin. Apple (AAPL), Google (GOOG), and Microsoft (MSFT) are the three most popular stocks (check out the entire list here). We also prepare lists of most popular stocks in each sector. Here are the 10 most popular healthcare stocks among hedge funds:
1. Pfizer (PFE): Advil, Xanax and ChapStick are just a few of Pfizer’s products that are so popular their names are synonymous with the type of product itself. It should be no surprise that such a ubiquitous company takes the top spot with a total of 74 hedge funds reporting holdings. Fisher Asset Management is the largest fund holder with 22.2 million shares (see billionaire Ken Fisher’s other top stock picks). That is almost twice the number held by the next two largest holders, D. E. Shaw and Adage Capital Management. With 11.6 million and 11.5 million shares, respectively, D. E. Shaw and Adage may actually have different views on PFE’s future. D. E. Shaw’s 11.6 million shares was an increase of 25% from the prior reporting period. However, Adage’s ownership was a reduction of 14%. PFE is expected to show a small decrease in revenues for both fiscal 2012 and 2013, but earnings are expected to increase by 5.4% from 2012 to 2013. PFE has a history of surpassing earnings expectations and has done so each of the past four quarters by an average 5.6%.
2. Sanofi (SNY): Ken Fisher loves SNY. His Fisher Asset Management is the largest fund holder of SNY and the third largest of any institution. According to his latest disclosure, Fisher held 14.54 million shares valued at $563.6 million. That is not only three times larger than Warren Buffett’s 4.1 million shares making Berkshire Hathaway the next largest shareholder (see which stocks Warren Buffett is buying), but it was an increase of 23% from the last report. While revenue estimates predict a decrease for 2012 of 5.6%, analysts believe things will improve dramatically. SNY is expected to swing to positive growth and show an increase in revenues of 2.2% for 2013.
3. Express Scripts (ESRX): Lone Pine Capital, Stephen Mandel’s fund is the largest hedge fund shareholder of ESRX even though the fund disposed of 45% of it’s holdings from the previous reporting period (see what other stocks Lone Pine is selling). Lone Pine reported owning 7.57 million shares after the change. However, the second largest hedge fund holder more than doubled its ownership. Fir Tree reported owning 6.54 million shares with a value of $354.2 million, an increase of 160% compared to the prior period. A total of 30 funds initiated new positions in ESRX and 30 exited leaving the number of hedge funds holding positions unchanged at 58. ESRX is expected to grow revenues at an annual rate of 17.86% over the next five years.
4. Johnson & Johnson (JNJ): Holding more than $12 in cash per share and providing a dividend yield of 3.6%, JNJ’s average revenue growth estimates is 7.9% for fiscal 2013. That’s good news for JNJ’s holders, especially Warren Buffett whose Berkshire Hathaway is the largest shareholder among the funds we track. That’s more than double the next largest institution, Fisher Asset Management where Ken Fisher last reported ownership of 10.76 million shares valued at $710 million. There was a slight drop in hedge fund ownership in the most recent period as a net total of 3 funds exited positions in JNJ helping decrease the total value of hedge fund ownership by more than $190 million.
5. Illumina (ILMN): This maker of tools and systems used in the analysis of genetic variation saw the largest increase in ownership in the entire list in terms of both percentage increase and total dollar amount. The current top five hedge fund holders of ILMN are all new shareholders. York Capital Management, Viking Global, Highfields Capital Management, Mason Capital Management and Pentwater Capital Management all initiated new positions. York Capital Management (see other stocks York Capital is buying) is ILMN’s new largest hedge fund shareholder with slightly more than 3 million shares while Pentwater ranks 5th after acquiring just over 1 million shares valued at $54.19 million. For its 1st Quarter, ILMN beat expectations in both top and bottom line numbers posting $273 million in revenues and $0.36 per share in earnings.
The stock was trading above $35 in February before it received an offer from Roche Holdings AG. The stock jumped above $50 after the announcement, and that’s probably when hedge funds bought in as part of a merger arbitrage strategy (read more about merger arbitrage here). There were 17 hedge funds with ILMN positions at the end of December. That number stood at 49 on March 31. Unfortunately Roche’s tender offer expired and Illumina currently trades around $40.
6. Wellpoint (WLP): Thanks to large increases in ownership by funds like First Eagle Investment Management, total hedge fund ownership increased even though net fund holders decreased by four to 48. First Eagle increased their ownership by 58% to 5.59 million shares, keeping their spot as WLP’s largest holder (see more of First Eagle’s favorite stocks). Recently WLP announced it has reached an agreement to acquire Amerigroup (AGP) for $4.9 billion in cash. AGP is a leader in Medicaid where WLP believes there are exceptional opportunities for growth.
7. Unitedhealth Group (UNH): Increasing their holdings, hedge funds such as Visium Asset Management and Omega Advisors helped increase total fund holdings of UNH to $2.38 billion. Visium nearly tripled their holdings to $1.25 billion, an increase of 169% and Omega almost doubled their holdings, increasing ownership by 93% to $2.27 billion. Visium has been very active in this business sector, increasing their holdings in CVS Caremark (CVS) and Watson Pharmaceuticals (WPI) by 83% and 510%, respectively (see other stocks Visium is buying now). UNH, one of six recipients of the inaugural 2012 CX Innovation Award for engaging employees in the customer experience, is trading just 9% below its 52-week high of $60.75.
8. Abbott Laboratories (ABT): This $103 billion, S&P 500 member sports a P/E ratio a fraction above 20 with earnings per share totaling $3.24 over the previous four quarters. While the net number of hedge fund holders remained unchanged at 44, it wasn’t for lack of activity. A total of 21 funds initiated new positions in the stock meaning the same number exited. Most were smaller than average positions, but it may show that even the experts are undecided about the near future for ABT shares. Insiders are sending a signal as there have been absolutely no recent buys, but dozens of sales. In fact, officers and directors have sold just over 3 million shares in 2012 (see who else is selling Abbott Laboratories).
9. Valeant Pharmaceuticals International (VRX): Although Valeant lost a net total of three hedge funds as shareholders and more funds reduced their stake than added to it, the largest changes in ownership came from a few funds doubling down and buying more. Columbus Circle Advisors increased their holdings by 121% making them the 8th largest hedge fund owner with holdings valued at $121.7 million (see what other stocks Columbus Circle is buying). Above them , the 7th largest fund holder, Brahman Capital almost doubled its stake, increasing holdings by 96% to 2.44 million shares. 15 analysts rate VRX a buy, one analyst rates it a sell, and two rate it a hold.
10. Humana (HUM): The number of hedge funds in HUM increased by 7 bringing the total number to 42. Those additions provided a boost to the total value of shares held by hedge funds, topping $1 billion, a net increase of over $338 million. David Harding’s Winton Capital Management and Daniel Arbess’ Perella Weinberg Partners were among the funds adding Humana as a new position. Charles Anderson is convinced Humana is undervalued as his Fox Point Capital Management fund doubled it’s holdings for the quarter to a total of 200,000 shares (see some of Fox Point Capital Management’s other stock picks). Humana’s shares have traded down in 2012, posting a loss of 15% year-to-date.