Allergan, Humana, Biogen: Billionaires’ Favorite Healthcare Stocks For Q3

The healthcare sector had one of its worst years in almost a decade last year when several big names from the space saw their stocks plunge dramatically. The beginning of 2016 was equally dismal for several healthcare stocks, but they have managed to recoup some of the losses they suffered last year over the past few months. Although the S&P 500 Health Care (Sector) Index is still lagging behind the S&P 500 by 298 basis points in year-to-date returns, it is currently up by over 4% in 2016.

Considering that healthcare stocks have now stabilized after a period of severe correction, we at Insider Monkey have compiled a list of stocks from the sector based on their popularity at the end of the second quarter among the 62 billionaire investors that we cover. In this post, we will take a look at the five healthcare stocks that topped the charts and will discuss how their popularity among the billionaire investors in our database has changed since the end of the first quarter.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5 Biogen Inc (NASDAQ:BIIB)

– Number of Billionaires With Long Positions (as of June 30): 11

– Aggregate Value of Billionaires’ Holdings (as of June 30): $1.99 billion

Let’s start with Biogen Inc (NASDAQ:BIIB), whose ownership among billionaire investors remained unchanged during the second quarter, though the aggregate value of their holdings in it increased by $769 million. Billionaire Ken Griffin‘s Citadel Investment Group hiked its stake in the company three-fold to almost 1.36 million shares during that time. Although Biogen Inc (NASDAQ:BIIB)’s stock was trading in the red in 2016 until last month, it has registered significant gains following the company’s second quarter earnings release and currently trades up by 3.19% year-to-date. A lot of the gains that the stock has seen this month have also come on the back of rumors that the company might be acquired by either Merck (NYSE:MRK) or Allergan (NYSE:AGN). However, Allergan has since denied having any interest in buying Biogen and nothing official has surfaced from Merck. According to some analysts who track the stock, Biogen might be inflating its reported earnings by showing the 30% revenue that it pays to the former owners of its bestselling drug Tecfidera, which accounts for 40% of the company’s revenue, as goodwill rather than as an expense. On August 17, analysts at Morgan Stanley reiterated their ‘Overweight’ rating on the stock, but lowered their price target on it to $368 from $385.

#4 Pfizer Inc. (NYSE:PFE)

– Number of Billionaires With Long Positions (as of June 30): 12

– Aggregate Value of Billionaires’ Holdings (as of June 30): $2.54 billion

Pfizer Inc. (NYSE:PFE) saw a marked decline in its popularity during the second quarter among the billionaire investors in our system, as its ownership among them declining by five and the aggregate value of their holdings in it slumped by $394 million. Billionaires that sold their entire stake in the company during the period included Andreas Halvorsen (Viking Global) and Barry Rosenstein (JANA Partners). Pfizer Inc. (NYSE:PFE)’s stock has made considerable gains this year after the company called off its merger with Allergan in early-April. Though the stock has given up some of those gains this month following the company’s second quarter earnings release, it is still trading up by over 7% in 2016. On August 22, the company announced that it has agreed to acquire California-based biotech major Medivation Inc (NASDAQ:MDVN) for around $14 billion or $81.50 per share. The deal is expected to be completed by the fourth quarter of 2016. A day after that announcement, analysts at Piper Jaffray reiterated their ‘Buy’ rating on Pfizer’s stock and set a price target of $54 on it, which represents potential upside of 54%.

We’ll look at billionaires’ three favorite healthcare stocks on the next page.

#3 Humana Inc (NYSE:HUM)

– Number of Billionaires With Long Positions (as of June 30): 12

– Aggregate Value of Billionaires’ Holdings (as of June 30): $2.96 billion

Next up on our list is Humana Inc (NYSE:HUM), which is currently engaged in a bitter fight with the U.S. Department of Justice over its $37 billion merger with Aetna Inc (NYSE:AET). During the second quarter, the number of billionaire investors that we track long Humana Inc (NYSE:HUM) came down by three and the aggregate value of their holdings in it shrank by $187 million. Nevertheless, during the same period, billionaire Jim Simons‘ Renaissance Technologies upped its stake in the company by 59% to 706,800 shares. While Humana’s stock has been range-bound for more than a year now, it has been extremely volatile in 2016 and is currently trading flat for the year.

On July 21, the U.S. Department of Justice filed an antitrust suit in U.S. District Court in Washington, DC attempting to block the Aetna/Humana merger. Following this news, both companies announced that they will challenge the lawsuit and criticized the government’s claims that their merger will have anti-competitive effects on the Medicare Advantage and Affordable Care Act markets. Aetna Inc (NYSE:AET) recently issued a letter to the U.S. Department of Justice in which it threatened that if the company’s proposed merger with Humana is blocked, it would cut its participation in Affordable Care Act (ACA) public exchanges by nearly 70%. Most analysts who track Humana have a favorable view of it currently, though some of them are cautioning their clients that now is not the best time to buy the stock.

#2 Shire PLC (ADR)(NASDAQ:SHPG)

– Number of Billionaires With Long Positions (as of June 30): 13

– Aggregate Value of Billionaires’ Holdings (as of June 30): $2.31 billion

Moving on, the popularity of Shire PLC (ADR)(NASDAQ:SHPG) among billionaire investors increased significantly during the second quarter, with the number of billionaires reporting a stake in the company rising by five and the aggregate value of their holdings in it jumping by 54.6%. Legendary hedge fund manager and billionaire Julian Robertson of Tiger Management initiated a stake in Shire PLC (ADR)(NASDAQ:SHPG) during the quarter, purchasing 120,554 shares of the company. At the beginning of this year, Shire PLC announced its $32 billion acquisition of Baxalta, which was completed in June. According to rumors on the Street, the company is following up that acquisition with an attempt at another, having made an $800 million bid for Novato-based, rare diseases-focused biopharmaceutical company Raptor Pharmaceuticals (NASDAQ:RPTP) recently. For its second quarter, Shire PLC reported EPS of $3.38 on revenue of $2.43 billion, topping analysts’ estimates of EPS of $3.03 on revenue of $2.28 billion.

#1 Allergan plc Ordinary Shares (NYSE:AGN)

– Number of Billionaires With Long Positions (as of June 30): 21

– Aggregate Value of Billionaires’ Holdings (as of June 30): $5.95 billion

Despite the number of billionaire investors with long positions in the company declining by six and the aggregate value of their holdings in it sinking by $3.15 billion during the second quarter, Allergan plc Ordinary Shares (NYSE:AGN) continued to remain the favorite healthcare stock of the billionaire investors tracked by Insider Monkey at the end of June. However, it lost its spot as the favorite stock overall among billionaire investors to Microsoft Corporation (NASDAQ:MSFT)  during that time. Dan Loeb (Third Point) was one of several billionaire investors that lowered their stake in Allergan plc Ordinary Shares (NYSE:AGN) during the April-to-June period, by 2% to 4.9 million shares.

The pharma giant lost a considerable amount of its market capitalization in April after it, along with Pfizer, announced the termination of their merger. Though its stock has recovered since then, it is still trading down by almost 20% year-to-date. A year after agreeing to sell its generics business to Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) for $40.2 billion, Allergan announced on August 2 that it is selling its Anda, Inc. distribution business to Teva for $500 million. On August 11, Allergan revealed that it has agreed to acquire private eye care company ForSight VISION5 for $95 million in cash and an undisclosed launch milestone payment related to its lead development program. According to analysts, the ForSight VISION5 acquisition will help Allergan to defend the market share of its eye care brands.

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