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Eli Lilly and Company (LLY): Are Hedge Funds Right About This Stock?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Eli Lilly and Company (NYSE:LLY).

Eli Lilly and Company (NYSE:LLY) investors should pay attention to an increase in support from the world’s most elite money managers lately. Our calculations also showed that LLY isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Ken Fisher Fisher Asset Management

We’re going to view the new hedge fund action regarding Eli Lilly and Company (NYSE:LLY).

How are hedge funds trading Eli Lilly and Company (NYSE:LLY)?

Heading into the fourth quarter of 2018, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LLY over the last 13 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with LLY Positions

The largest stake in Eli Lilly and Company (NYSE:LLY) was held by Fisher Asset Management, which reported holding $399.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $390.2 million position. Other investors bullish on the company included D E Shaw, Adage Capital Management, and Two Sigma Advisors.

Consequently, key hedge funds have been driving this bullishness. Capital Growth Management, managed by Ken Heebner, assembled the most outsized position in Eli Lilly and Company (NYSE:LLY). Capital Growth Management had $43.5 million invested in the company at the end of the quarter. Jonathon Jacobson’s Highfields Capital Management also initiated a $37.6 million position during the quarter. The other funds with new positions in the stock are Principal Global Investors’s Columbus Circle Investors, Ian Simm’s Impax Asset Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s check out hedge fund activity in other stocks similar to Eli Lilly and Company (NYSE:LLY). These stocks are Altria Group Inc (NYSE:MO), Novo Nordisk A/S (NYSE:NVO), United Technologies Corporation (NYSE:UTX), and Sanofi (NYSE:SNY). This group of stocks’ market valuations are closest to LLY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MO 41 1332680 6
NVO 17 1845947 -1
UTX 59 7281525 7
SNY 24 821542 1
Average 35.25 2820424 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $2.82 billion. That figure was $1.71 billion in LLY’s case. United Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 17 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) 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. In this regard UTX might be a better candidate to consider a long position.

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

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