Elanco Animal Health Incorporated (ELAN): Hedge Fund Interest Inching Up

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Elanco Animal Health Incorporated (NYSE:ELAN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Elanco Animal Health Incorporated (NYSE:ELAN) a good investment right now? Hedge funds were becoming hopeful. The number of bullish hedge fund bets increased by 4 recently. Elanco Animal Health Incorporated (NYSE:ELAN) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that ELAN 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). There were 26 hedge funds in our database with ELAN positions at the end of the first quarter.

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

In the financial world there are plenty of formulas market participants put to use to analyze publicly traded companies. A couple of the most underrated formulas are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best hedge fund managers can beat their index-focused peers by a significant amount (see the details here).

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. Keeping this in mind we’re going to take a peek at the key hedge fund action surrounding Elanco Animal Health Incorporated (NYSE:ELAN).

How have hedgies been trading Elanco Animal Health Incorporated (NYSE:ELAN)?

Heading into the third quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in ELAN a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in Elanco Animal Health Incorporated (NYSE:ELAN) was held by D E Shaw, which reported holding $38 million worth of stock at the end of September. It was followed by Crescent Park Management with a $34.2 million position. Other investors bullish on the company included Holocene Advisors, Balyasny Asset Management, and Clearfield Capital. In terms of the portfolio weights assigned to each position Clearfield Capital allocated the biggest weight to Elanco Animal Health Incorporated (NYSE:ELAN), around 11.15% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, earmarking 7.05 percent of its 13F equity portfolio to ELAN.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Elanco Animal Health Incorporated (NYSE:ELAN) headfirst. Holocene Advisors, managed by Brandon Haley, assembled the biggest position in Elanco Animal Health Incorporated (NYSE:ELAN). Holocene Advisors had $29.1 million invested in the company at the end of the quarter. Philip Hilal’s Clearfield Capital also made a $20.7 million investment in the stock during the quarter. The following funds were also among the new ELAN investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Greg Eisner’s Engineers Gate Manager, and Qing Li’s Sciencast Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Elanco Animal Health Incorporated (NYSE:ELAN) but similarly valued. We will take a look at James Hardie Industries plc (NYSE:JHX), IPG Photonics Corporation (NASDAQ:IPGP), F5 Networks, Inc. (NASDAQ:FFIV), Shaw Communications Inc (NYSE:SJR), CyrusOne Inc (NASDAQ:CONE), Beyond Meat, Inc. (NASDAQ:BYND), and Henry Schein, Inc. (NASDAQ:HSIC). This group of stocks’ market valuations match ELAN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JHX 5 11376 1
IPGP 30 239086 10
FFIV 39 1073838 7
SJR 13 129866 1
CONE 25 483347 -6
BYND 29 253737 16
HSIC 33 1057007 -2
Average 24.9 464037 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $464 million. That figure was $213 million in ELAN’s case. F5 Networks, Inc. (NASDAQ:FFIV) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 5 bullish hedge fund positions. Elanco Animal Health Incorporated (NYSE:ELAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ELAN is 70.8. 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. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on ELAN as the stock returned 28.9% during Q3 (through September 14th) 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.