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Did Hedge Funds Drop The Ball On Medicines Company (MDCO)?

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.

The Medicines Company (NASDAQ:MDCO) was in 25 hedge funds’ portfolios at the end of the first quarter of 2019. MDCO investors should pay attention to an increase in hedge fund interest recently. There were 20 hedge funds in our database with MDCO positions at the end of the previous quarter. Our calculations also showed that MDCO isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Denner Sarissa Capital

We’re going to go over the fresh hedge fund action surrounding The Medicines Company (NASDAQ:MDCO).

How are hedge funds trading The Medicines Company (NASDAQ:MDCO)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the fourth quarter of 2018. On the other hand, there were a total of 27 hedge funds with a bullish position in MDCO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MDCO_june2019

Among these funds, Maverick Capital held the most valuable stake in The Medicines Company (NASDAQ:MDCO), which was worth $106.6 million at the end of the first quarter. On the second spot was Sarissa Capital Management which amassed $101.6 million worth of shares. Moreover, Bridger Management, Camber Capital Management, and Slate Path Capital were also bullish on The Medicines Company (NASDAQ:MDCO), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, some big names have been driving this bullishness. venBio Select Advisor, managed by Behzad Aghazadeh, established the largest position in The Medicines Company (NASDAQ:MDCO). venBio Select Advisor had $43.7 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey’s Healthcor Management LP also made a $28 million investment in the stock during the quarter. The other funds with new positions in the stock are Kenneth Tropin’s Graham Capital Management, D. E. Shaw’s D E Shaw, and Zachary Miller’s Parian Global Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Medicines Company (NASDAQ:MDCO) but similarly valued. These stocks are ExlService Holdings, Inc. (NASDAQ:EXLS), PQ Group Holdings Inc. (NYSE:PQG), Transportadora de Gas del Sur SA (NYSE:TGS), and Uniti Group Inc. (NASDAQ:UNIT). This group of stocks’ market caps are closest to MDCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXLS 10 42850 -1
PQG 6 56295 2
TGS 12 33129 4
UNIT 21 249203 7
Average 12.25 95369 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $582 million in MDCO’s case. Uniti Group Inc. (NASDAQ:UNIT) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks The Medicines Company (NASDAQ:MDCO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on MDCO as the stock returned 24.5% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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