Hedge Fund Consensus Stocks vs. Allergan plc (AGN) In 2019

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Allergan plc (NYSE:AGN) based on that data.

Allergan plc (NYSE:AGN) has seen an increase in support from the world’s most elite money managers lately. AGN was in 81 hedge funds’ portfolios at the end of September. There were 80 hedge funds in our database with AGN holdings at the end of the previous quarter. Our calculations also showed that AGN currently ranks 23rd among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

If you’d ask most stock holders, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our experts choose to focus on the leaders of this group, about 750 funds. Most estimates calculate that this group of people oversee the majority of all hedge funds’ total asset base, and by tracking their best investments, Insider Monkey has uncovered many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a glance at the recent hedge fund action surrounding Allergan plc (NYSE:AGN).

What have hedge funds been doing with Allergan plc (NYSE:AGN)?

At the end of the third quarter, a total of 81 of the hedge funds tracked by Insider Monkey were long this stock, a change of 1% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AGN over the last 17 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Allergan plc (NYSE:AGN) was held by Adage Capital Management, which reported holding $1072.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $618.3 million position. Other investors bullish on the company included Third Point, Paulson & Co, and Millennium Management. In terms of the portfolio weights assigned to each position MFN Partners allocated the biggest weight to Allergan plc (NYSE:AGN), around 35.22% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, dishing out 21.99 percent of its 13F equity portfolio to AGN.

As aggregate interest increased, key money managers have jumped into Allergan plc (NYSE:AGN) headfirst. Third Point, managed by Dan Loeb, initiated the largest position in Allergan plc (NYSE:AGN). Third Point had $605.8 million invested in the company at the end of the quarter. Scott Ferguson’s Sachem Head Capital also initiated a $212.9 million position during the quarter. The other funds with brand new AGN positions are James Dinan’s York Capital Management, Isaac Corre’s Governors Lane, and John Orrico’s Water Island Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Allergan plc (NYSE:AGN) but similarly valued. These stocks are The Charles Schwab Corporation (NYSE:SCHW), Raytheon Company (NYSE:RTN), Target Corporation (NYSE:TGT), and General Motors Company (NYSE:GM). This group of stocks’ market valuations resemble AGN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SCHW 52 3125721 4
RTN 49 3254934 10
TGT 53 2073012 16
GM 68 6375993 19
Average 55.5 3707415 12.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.5 hedge funds with bullish positions and the average amount invested in these stocks was $3707 million. That figure was $8207 million in AGN’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Raytheon Company (NYSE:RTN) is the least popular one with only 49 bullish hedge fund positions. Compared to these stocks Allergan plc (NYSE:AGN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AGN as the stock returned 46.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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