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Did Hedge Funds Make The Right Call On Alkermes Plc (ALKS) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Alkermes Plc (NASDAQ:ALKS) and determine whether hedge funds had an edge regarding this stock.

Is Alkermes Plc (NASDAQ:ALKS) a healthy stock for your portfolio? Money managers were in a bearish mood. The number of bullish hedge fund bets dropped by 3 recently. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are tons of signals stock traders employ to assess stocks. A duo of the most useful signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can outperform the S&P 500 by a healthy margin (see the details here).

Alex Denner Sarissa Capital

Alex Denner of Sarissa Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a gander at the latest hedge fund action surrounding Alkermes Plc (NASDAQ:ALKS).

What have hedge funds been doing with Alkermes Plc (NASDAQ:ALKS)?

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the fourth quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in ALKS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Sarissa Capital Management was the largest shareholder of Alkermes Plc (NASDAQ:ALKS), with a stake worth $103.7 million reported as of the end of September. Trailing Sarissa Capital Management was Renaissance Technologies, which amassed a stake valued at $103.6 million. Camber Capital Management, Maverick Capital, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Alkermes Plc (NASDAQ:ALKS), around 13.23% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, dishing out 5.21 percent of its 13F equity portfolio to ALKS.

Seeing as Alkermes Plc (NASDAQ:ALKS) has experienced bearish sentiment from the smart money, logic holds that there exists a select few money managers that slashed their positions entirely last quarter. At the top of the heap, Kevin Kotler’s Broadfin Capital cut the largest investment of the 750 funds monitored by Insider Monkey, comprising about $21.1 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dumped about $20.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alkermes Plc (NASDAQ:ALKS) but similarly valued. These stocks are Teradata Corporation (NYSE:TDC), MGE Energy, Inc. (NASDAQ:MGEE), Ra Pharmaceuticals, Inc. (NASDAQ:RARX), and Penske Automotive Group, Inc. (NYSE:PAG). All of these stocks’ market caps are closest to ALKS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TDC 24 171880 -4
MGEE 6 38970 -3
RARX 34 890266 6
PAG 19 69005 -10
Average 20.75 292530 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $509 million in ALKS’s case. Ra Pharmaceuticals, Inc. (NASDAQ:RARX) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 6 bullish hedge fund positions. Alkermes Plc (NASDAQ:ALKS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALKS as the stock returned 34.6% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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