Allergan, Inc. (NYSE:AGN): Hedge Funds and Insiders Are Bearish, What Should You Do?

Is Allergan, Inc. (NYSE:AGN) a bargain? Money managers are selling. The number of bullish hedge fund bets were cut by 5 in recent months.

In the eyes of most shareholders, hedge funds are seen as underperforming, old financial vehicles of the past. While there are more than 8000 funds with their doors open at the moment, we at Insider Monkey look at the elite of this group, close to 450 funds. It is widely believed that this group has its hands on the lion’s share of the smart money’s total asset base, and by tracking their highest performing equity investments, we have revealed a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 25 percentage points in 6.5 month (see all of our picks from August).

Equally as integral, optimistic insider trading sentiment is another way to break down the world of equities. Just as you’d expect, there are lots of motivations for a bullish insider to downsize shares of his or her company, but just one, very simple reason why they would behave bullishly. Many academic studies have demonstrated the useful potential of this method if investors know where to look (learn more here).

With these “truths” under our belt, let’s take a gander at the recent action surrounding Allergan, Inc. (NYSE:AGN).

What have hedge funds been doing with Allergan, Inc. (NYSE:AGN)?

In preparation for this year, a total of 30 of the hedge funds we track held long positions in this stock, a change of -14% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully.

When looking at the hedgies we track, Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, holds the largest position in Allergan, Inc. (NYSE:AGN). Healthcor Management LP has a $92 million position in the stock, comprising 5% of its 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $90 million position; 0.6% of its 13F portfolio is allocated to the company. Remaining hedge funds that hold long positions include Robert Pohly’s Samlyn Capital, Phill Gross and Robert Atchinson’s Adage Capital Management and Roberto Mignone’s Bridger Management.

Judging by the fact that Allergan, Inc. (NYSE:AGN) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who sold off their positions entirely in Q4. Interestingly, Michael Karsch’s Karsch Capital Management said goodbye to the largest position of the “upper crust” of funds we key on, totaling about $69 million in stock., and Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital was right behind this move, as the fund dumped about $43 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds in Q4.

How have insiders been trading Allergan, Inc. (NYSE:AGN)?

Insider purchases made by high-level executives is particularly usable when the company in question has seen transactions within the past half-year. Over the last six-month time period, Allergan, Inc. (NYSE:AGN) has experienced zero unique insiders buying, and 11 insider sales (see the details of insider trades here).

With the results exhibited by the aforementioned research, retail investors must always watch hedge fund and insider trading sentiment, and Allergan, Inc. (NYSE:AGN) applies perfectly to this mantra.

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