Did The Smart Money Play Bausch Health Companies Inc. (BHC) Correctly?

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 Bausch Health Companies Inc. (NYSE:BHC) and determine whether hedge funds had an edge regarding this stock.

Bausch Health Companies Inc. (NYSE:BHC) investors should be aware of a decrease in hedge fund interest lately. Bausch Health Companies Inc. (NYSE:BHC) was in 39 hedge funds’ portfolios at the end of September. The all time high for this statistic is 45. Our calculations also showed that BHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Bausch Health Companies Inc. (NYSE:BHC).

Do Hedge Funds Think BHC Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BHC over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Icahn Capital LP was the largest shareholder of Bausch Health Companies Inc. (NYSE:BHC), with a stake worth $949.9 million reported as of the end of September. Trailing Icahn Capital LP was Paulson & Co, which amassed a stake valued at $719.6 million. ValueAct Capital, Glenview Capital, and GoldenTree Asset 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 Paulson & Co allocated the biggest weight to Bausch Health Companies Inc. (NYSE:BHC), around 20.5% of its 13F portfolio. Chou Associates Management is also relatively very bullish on the stock, earmarking 20.11 percent of its 13F equity portfolio to BHC.

Judging by the fact that Bausch Health Companies Inc. (NYSE:BHC) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers that decided to sell off their entire stakes heading into Q4. Interestingly, Neil Shahrestani’s Ikarian Capital dropped the biggest position of the 750 funds followed by Insider Monkey, worth about $16.1 million in call options. Himanshu Gulati’s fund, Antara Capital, also dumped its call options, about $14.7 million worth. These moves are interesting, as total hedge fund interest dropped by 6 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Bausch Health Companies Inc. (NYSE:BHC). We will take a look at TD SYNNEX Corporation (NYSE:SNX), Deckers Outdoor Corp (NYSE:DECK), Five Below Inc (NASDAQ:FIVE), Cleveland-Cliffs Inc (NYSE:CLF), Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), Guidewire Software Inc (NYSE:GWRE), and Hill-Rom Holdings, Inc. (NYSE:HRC). This group of stocks’ market caps resemble BHC’s market cap.

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As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1058 million. That figure was $3841 million in BHC’s case. Deckers Outdoor Corp (NYSE:DECK) is the most popular stock in this table. On the other hand TD SYNNEX Corporation (NYSE:SNX) is the least popular one with only 24 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. Our overall hedge fund sentiment score for BHC is 56.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, BHC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BHC were disappointed as the stock returned -11.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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