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Did Hedge Funds Make The Right Call On Bausch Health Companies Inc. (BHC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Bausch Health Companies Inc. (NYSE:BHC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Bausch Health Companies Inc. (NYSE:BHC) an attractive investment now? Money managers were betting on the stock. The number of long hedge fund positions rose by 4 recently. Our calculations also showed that BHC 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). BHC was in 35 hedge funds’ portfolios at the end of March. There were 31 hedge funds in our database with BHC positions at the end of the previous quarter.

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

In the eyes of most shareholders, hedge funds are viewed as underperforming, outdated financial vehicles of years past. While there are more than 8000 funds trading at present, Our researchers choose to focus on the upper echelon of this club, approximately 850 funds. These investment experts watch over most of the hedge fund industry’s total asset base, and by tracking their finest investments, Insider Monkey has revealed a few investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the latest hedge fund action encompassing Bausch Health Companies Inc. (NYSE:BHC).

How are hedge funds trading Bausch Health Companies Inc. (NYSE:BHC)?

Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BHC over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Bausch Health Companies Inc. (NYSE:BHC) was held by Paulson & Co, which reported holding $323 million worth of stock at the end of September. It was followed by ValueAct Capital with a $277.9 million position. Other investors bullish on the company included Glenview Capital, Renaissance Technologies, and GoldenTree Asset Management. In terms of the portfolio weights assigned to each position GoldenTree Asset Management allocated the biggest weight to Bausch Health Companies Inc. (NYSE:BHC), around 24.8% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, earmarking 12.32 percent of its 13F equity portfolio to BHC.

Consequently, key money managers have jumped into Bausch Health Companies Inc. (NYSE:BHC) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, created the biggest position in Bausch Health Companies Inc. (NYSE:BHC). Healthcor Management LP had $59.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $16.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Jaime Sterne’s Skye Global Management.

Let’s now take a look at hedge fund activity in other stocks similar to Bausch Health Companies Inc. (NYSE:BHC). These stocks are Mohawk Industries, Inc. (NYSE:MHK), Ally Financial Inc (NYSE:ALLY), Whirlpool Corporation (NYSE:WHR), and Voya Financial Inc (NYSE:VOYA). This group of stocks’ market valuations are similar to BHC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MHK 36 585591 -4
ALLY 45 931554 -9
WHR 25 567352 -3
VOYA 32 617032 -11
Average 34.5 675382 -6.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $675 million. That figure was $1567 million in BHC’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Whirlpool Corporation (NYSE:WHR) is the least popular one with only 25 bullish hedge fund positions. Bausch Health Companies Inc. (NYSE:BHC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 15.5 percentage points. Unfortunately BHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHC were disappointed as the stock returned 18% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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