Do Hedge Funds Love Bausch Health Companies (BHC)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Bausch Health Companies (NYSE:BHC) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in Bausch Health Companies (NYSE:BHC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Kingsoft Cloud Holdings Limited (NASDAQ:KC), Repligen Corporation (NASDAQ:RGEN), and GrubHub Inc (NYSE:GRUB) to gather more data points. Our calculations also showed that BHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to analyze the new hedge fund action regarding Bausch Health Companies (NYSE:BHC).

Hedge fund activity in Bausch Health Companies (NYSE:BHC)

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BHC over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Paulson & Co was the largest shareholder of Bausch Health Companies (NYSE:BHC), with a stake worth $472.6 million reported as of the end of September. Trailing Paulson & Co was ValueAct Capital, which amassed a stake valued at $328 million. Glenview Capital, Renaissance Technologies, 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 GoldenTree Asset Management allocated the biggest weight to Bausch Health Companies (NYSE:BHC), around 17.61% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, earmarking 15.1 percent of its 13F equity portfolio to BHC.

Seeing as Bausch Health Companies (NYSE:BHC) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their positions entirely last quarter. It’s worth mentioning that David Greenspan’s Slate Path Capital cut the biggest investment of the 750 funds monitored by Insider Monkey, valued at close to $65.8 million in stock, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP was right behind this move, as the fund dumped about $59.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Bausch Health Companies (NYSE:BHC). These stocks are Kingsoft Cloud Holdings Limited (NASDAQ:KC), Repligen Corporation (NASDAQ:RGEN), GrubHub Inc (NYSE:GRUB), Federal Realty Investment Trust (NYSE:FRT), Plains All American Pipeline, L.P. (NYSE:PAA), Amedisys Inc (NASDAQ:AMED), and Penumbra Inc (NYSE:PEN). This group of stocks’ market values are closest to BHC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $1746 million in BHC’s case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 9 bullish hedge fund positions. Bausch Health Companies (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 60.8. 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 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 33% in 2020 through the end of August and beat the market by 23.2 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 -9.1% 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.

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