5 Healthcare Stocks Hedge Funds Are Dumping Like Crazy

Given that the latest batch of 13F filings has just been released and collective hedge fund activity can sometimes presage future stock moves, Insider Monkey has compiled a list of healthcare stocks that many smart money funds were abandoning in the third quarter, potentially on the fear that Clinton would win the Presidency. Although the hedge fund activity does not necessarily mean bad things ahead for these stocks, the activity does mean that investors should pay more attention to the stocks.

With that said, let’s examine Allergan plc Ordinary Shares (NYSE:AGN), Shire PLC (ADR) (NASDAQ:SHPG), Aetna Inc (NYSE:AET), Pfizer Inc. (NYSE:PFE), and Adeptus Health Inc (NYSE:ADPT), all of which lost a good deal of hedge fund support last quarter.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Adeptus Health Inc (NYSE:ADPT)

– Number of Hedge Fund Shareholders (as of September 30): 13
– Total Value of Hedge Fund Holdings (as of September 30): $183.86 million
– Hedge Fund Holdings as Percent of Float (as of September 30): 28.20%

According to our database of 742 successful institutions that filed 13Fs for the September quarter, the number of hedge funds with holdings in Adeptus Health Inc (NYSE:ADPT) fell by 11 quarter-over-quarter to 13 at the end of September. Although demand for emergency room services should grow in the future given the aging population, traders have been concerned about Adeptus’ debt. The company’s horrible third-quarter earnings report and weak guidance hasn’t helped either.

Aetna Inc (NYSE:AET)

– Number of Hedge Fund Shareholders (as of September 30): 49
– Total Value of Hedge Fund Holdings (as of September 30): $2.34 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 6.50%

49 funds that we track owned shares of Aetna Inc (NYSE:AET) at the end of the third quarter, down by 12 funds from the end of the second quarter. Those 12 funds may have wished they hadn’t exited Aetna, however, as shares of the health insurer took off after Donald Trump won the Presidency. Given Trump’s anti-regulation and pro-business stance, some traders evidently think that the odds of Aetna’s merger with Humana Inc (NYSE:HUM) getting the green light from regulators have increased. If the merger goes through, Aetna’s management could potentially unlock substantial synergies.

We’ll check out three more healthcare stocks that lost significant hedge fund support during the third quarter.

Shire PLC (ADR) (NASDAQ:SHPG)

– Number of Hedge Fund Shareholders (as of September 30): 50
– Total Value of Hedge Fund Holdings (as of September 30): $3.58 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 56.70%

A net total of 14 funds headed for Shire PLC’s exits in the third quarter, leaving 50 funds as believers in the stock. Although shares bounced along with the broader healthcare sector on the news of Donald Trump’s victory over Hillary Clinton, Shire has retraced since, as investors remain cautious on the drug sector. Given Trump’s strong dollar policy, Shire’s overseas earnings might not be as great as expected in dollar terms even if its U.S. sales remain robust. The long-term legislative risk for pharma reimbursement remains as well.

Pfizer Inc. (NYSE:PFE)

– Number of Hedge Fund Shareholders (as of September 30): 83
– Total Value of Hedge Fund Holdings (as of September 30): $5.5 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 2.70%

83 funds in our database owned shares of Pfizer Inc. (NYSE:PFE) at the end of September, down by 11 funds from the end of June. Some hedge funds likely left Pfizer due to concerns that Clinton would win the Presidency and that government regulation would subsequently increase. Now that Trump has won, however, Pfizer’s 3.79% dividend yield looks a lot more appetizing. With Trump promising less regulation and lower taxes, Pfizer’s cash flow for the next four years looks more attractive.

Allergan plc Ordinary Shares (NYSE:AGN)

– Number of Hedge Fund Shareholders (as of September 30): 115
– Total Value of Hedge Fund Holdings (as of September 30): $10.59 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 15.20%

While a net total of 16 funds may have sold out of the stock in the third quarter, Allergan plc Ordinary Shares (NYSE:AGN) remains one of the smart money’s top picks. According to our data, 115 funds that we track owned shares of the drug maker, making it the sixth-most widely-held company among the institutions that we follow. Although shares haven’t done well this year, Allergan trades for an attractive 12-times forward P/E. The company is also shareholder-friendly, having publicly stated that it is planning to repurchase up to $10 billion of its stock through an accelerated buyback program. It remains to be seen though whether Allergan’s valuation and buyback can offset its softer full-year outlook.

Disclosure: None