Most Popular Drug Manufacturers among Hedge Funds

People may say that some well-known hedge funds, such as John Paulson’s fund, suffered huge losses recently. True. Hedge funds are not 100% reliable. However, on the average, hedge funds have an edge over ordinary investors. Despite his terrible performance in 2011 Paulson still made $2 billion in 2010 and 2011 combined. Last year’s most popular stock among hedge funds, Apple (AAPL), outperformed the S&P 500 index by 50 percentage points over the past 52 weeks. Therefore investors should at least take a closer look at a stock when it is favored by a large number of hedge funds. Recently, hedge funds disclosed their latest 13F holdings to SEC. In this article, we are going to discuss the most popular drug manufacturers among hedge funds tracked by us.

largest hedge funds in the world

Pfizer Inc (PFE): PFE is the most popular drug manufacturer among hedge funds. At the end of last year, there were 69 hedge funds with PFE positions in their 13F portfolios. In total, they held $3.5 billion worth of PFE shares (The total market cap of PFE is about $160 billion). The most bullish money manager about PFE was Ken Fisher. As of December 31, 2011, Fisher Asset Management had $471 million invested in PFE. Ric Dillon, Lee Ainslie, and Bill Miller were also bullish about this stock.

We think PFE is especially a good option for dividend lovers. PFE’s current dividend yield is 4.16%, more than doubling that for 10-year Treasury bonds. It also has the ability to maintain or increase its payouts as its current payout ratio is 63%. The company also announced a $10 billion share buyback program, $5 billion of which is expected to be completed this year. Pfizer is a mature company that has higher cash flow than its accounting earnings. The cash flow per share has been around $2 per share for the past 5-6 years. This year the stock is expected to earn around $2.25 per share. As a result, PFE’s forward P/E ratio is only about 9.5, versus 16 for the average of pharmaceutical stocks. The stock isn’t expected to increase its earnings significantly though. Hedge funds are attracted to Pfizer because they expect that Pfizer’s planned spin-off of its non-core businesses may unlock some value.

Sanofi (SNY): SNY is the second most popular drug stock among hedge funds tracked by us. At the end of last year, there were 62 hedge funds with SNY positions, up from 49 hedge funds at the end of the third quarter. These 62 hedge funds, including Warren Buffett’s Berkshire Hathaway, had $1.15 billion in total invested in SNY, which has a total market cap of about $102 billion. Similar to PFE, SNY is also an attractive option for dividend lovers. Its current dividend yield is 4.74%. Over the past decade, the company raised its dividends from $0.4897 per share to $1.7564 per share. Thanks to its low growth expectation, SNY is currently trading at a discount. Its current P/E ratio is 12.81, versus 18.84 for its peers. Its forward P/E ratio of 8.65 is also a significant discount to 16.04 for the industry average. In April last year, SNY completed the acquisition of Genzyme Corp, a well-known biotechnology company that specializes in treatments for rare diseases. Genzyme had about $4 billion sales for the year before acquisition. As a French company, SNY will be able to gain more exposure to the US market through the acquisition. It will also gain more market shares in the fast growing biotechnology industry. The best thing about Sanofi is that its cash flow per share is more than twice as much as its earnings per share. As a result of its strong cash flow Sanofi was able to acquire Genzyme without increasing its debt load significantly.

A few other drug manufacturers that a large number of hedge funds love include Johnson & Johnson (JNJ), Merck & Co Inc (MRK), Abbott Laboratories (ABT), Eli Lilly & Co (LLY), and Bristol-Myers Squibb Co (BMY). At least 30 hedge funds reported owning these stocks at the end of last year. Except BMY, the rest stocks were held by more hedge funds at the end of December compared with the end of September. We agree with the hedge fund managers who sold out their BMY positions over the fourth quarter. The stock seems to be trading at a premium compared with the rest four stocks. BMY’s forward P/E ratio is 16.58, while forward P/E ratios of the other four stocks are all below 12. We do not think it is a good time to purchase BMY but we do recommend ABT, JNJ, LLY, and MRK for conservative dividend investors. They are not only trading at attractive multiples, but also have decent dividend yields of above 3.5%.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!