After Sharp Q2 Fall, Hedge Fund Interest in Express Scripts Holding Company (ESRX) Rebounds in Q3

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small-cap stocks, especially when they are screened well, can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Express Scripts Holding Company (NASDAQ:ESRX) from the perspective of those successful funds.

Is Express Scripts Holding Company (NASDAQ:ESRX) an excellent investment now? Prominent investors are becoming hopeful. The number of long hedge fund positions inched up by 1 recently. ESRX was in 52 hedge funds’ portfolios at the end of the third quarter of 2016. There were 51 hedge funds in our database with ESRX positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Adobe Systems Incorporated (NASDAQ:ADBE), Telefonica S.A. (ADR) (NYSE:TEF), and Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading Express Scripts Holding Company (NASDAQ:ESRX)?

At the end of the third quarter, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 2% rise from the second quarter of 2016. While not much of a gain, it does represent a rebound from the steep drop off witnessed in the second quarter. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Bob Peck and Andy Raab’s FPR Partners has the biggest position in Express Scripts Holding Company (NASDAQ:ESRX), worth close to $384.8 million, comprising 8.7% of its total 13F portfolio. Coming in second is Cedar Rock Capital, managed by Andy Brown, which holds a $349.8 million position; 8.6% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish encompass John Shapiro’s Chieftain Capital, D E Shaw, founded by David E. Shaw, and Michael Lowenstein’s Kensico Capital.

With general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the biggest call position in Express Scripts Holding Company (NASDAQ:ESRX). Citadel Investment Group had $27.2 million invested in the position at the end of the third quarter. Hal Mintz’s Sabby Capital also made a $20.4 million investment in the stock during the quarter. The following funds were also among the new ESRX investors: Matthew Tewksbury’s Stevens Capital Management, Sander Gerber’s Hudson Bay Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Express Scripts Holding Company (NASDAQ:ESRX) but similarly valued. These stocks are Adobe Systems Incorporated (NASDAQ:ADBE), Telefonica S.A. (ADR) (NYSE:TEF), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), and Suncor Energy Inc. (USA) (NYSE:SU). All of these stocks’ market caps are similar to ESRX’s market cap.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.18 billion. That figure was $2.45 billion in ESRX’s case. Adobe Systems Incorporated (NASDAQ:ADBE) is the most popular stock in this table. On the other hand Telefonica S.A. (ADR) (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Express Scripts Holding Company (NASDAQ:ESRX) is not the most popular stock in this group but hedge fund interest is still above average, as is the amount of money invested in it. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ADBE might be a better candidate to consider for a long position.

Disclosure: None