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Johnson & Johnson (JNJ): Are Hedge Funds Right About This Stock?

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Johnson & Johnson (NYSE:JNJ) has experienced a decrease in enthusiasm from smart money in recent months.

If you’d ask most traders, hedge funds are viewed as unimportant, old investment tools of the past. While there are more than 8000 funds in operation today, we at Insider Monkey look at the elite of this group, about 450 funds. It is estimated that this group has its hands on the lion’s share of the smart money’s total capital, and by tracking their top stock picks, we have determined a few investment strategies that have historically beaten Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually 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 outperformed the S&P 500 index by 24 percentage points in 7 months (see the details here).

Johnson & Johnson (NYSE:JNJ)Just as key, bullish insider trading sentiment is another way to break down the marketplace. Obviously, there are a variety of incentives for an insider to cut shares of his or her company, but only one, very obvious reason why they would buy. Various academic studies have demonstrated the impressive potential of this method if investors understand where to look (learn more here).

With these “truths” under our belt, we’re going to take a gander at the key action regarding Johnson & Johnson (NYSE:JNJ).

How are hedge funds trading Johnson & Johnson (NYSE:JNJ)?

At the end of the first quarter, a total of 65 of the hedge funds we track were long in this stock, a change of -8% from the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably.

Of the funds we track, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Johnson & Johnson (NYSE:JNJ). Fisher Asset Management has a $826.2 million position in the stock, comprising 2.2% of its 13F portfolio. Coming in second is Donald Yacktman of Yacktman Asset Management, with a $794.2 million position; 4.1% of its 13F portfolio is allocated to the company. Other hedgies with similar optimism include Prem Watsa’s Fairfax Financial Holdings, Kerr Neilson’s Platinum Asset Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Due to the fact that Johnson & Johnson (NYSE:JNJ) has faced bearish sentiment from hedge fund managers, logic holds that there were a few hedge funds that decided to sell off their positions entirely in Q1. At the top of the heap, Ric Dillon’s Diamond Hill Capital cut the biggest stake of the “upper crust” of funds we track, valued at an estimated $145.3 million in stock., and Nick Niell of Arrowgrass Capital Partners was right behind this move, as the fund dumped about $89.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds in Q1.

How have insiders been trading Johnson & Johnson (NYSE:JNJ)?

Bullish insider trading is particularly usable when the primary stock in question has experienced transactions within the past 180 days. Over the latest 180-day time frame, Johnson & Johnson (NYSE:JNJ) has seen zero unique insiders purchasing, and 2 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Johnson & Johnson (NYSE:JNJ). These stocks are GlaxoSmithKline plc (ADR) (NYSE:GSK), Merck & Co., Inc. (NYSE:MRK), Sanofi SA (ADR) (NYSE:SNY), Novartis AG (ADR) (NYSE:NVS), and Pfizer Inc. (NYSE:PFE). This group of stocks belong to the drug manufacturers – major industry and their market caps resemble JNJ’s market cap.

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