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Hedge Funds’ #10 Stock Pick Debunked Naysayers

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Bristol Myers Squibb Company (NYSE:BMY).

Is Bristol Myers Squibb Company (NYSE:BMY) a buy right now? The smart money is getting more bullish. The number of long hedge fund bets improved by 61 in recent months. Our calculations also showed that BMY ranked 10th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

BAUPOST GROUP Seth Klarman

Seth Klarman of Baupost Group

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the latest hedge fund action surrounding Bristol Myers Squibb Company (NYSE:BMY).

What have hedge funds been doing with Bristol Myers Squibb Company (NYSE:BMY)?

At the end of the fourth quarter, a total of 122 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the third quarter of 2019. On the other hand, there were a total of 58 hedge funds with a bullish position in BMY a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Bristol Myers Squibb Company (NYSE:BMY), which was worth $3864.9 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $417.4 million worth of shares. Orbis Investment Management, Baupost Group, and AQR Capital 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 Birchview Capital allocated the biggest weight to Bristol Myers Squibb Company (NYSE:BMY), around 36.33% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, dishing out 11.18 percent of its 13F equity portfolio to BMY.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Orbis Investment Management, managed by William B. Gray, created the biggest position in Bristol Myers Squibb Company (NYSE:BMY). Orbis Investment Management had $351.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $150.4 million position during the quarter. The other funds with brand new BMY positions are Phill Gross and Robert Atchinson’s Adage Capital Management, Samuel Isaly’s OrbiMed Advisors, and Matthew Halbower’s Pentwater Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bristol Myers Squibb Company (NYSE:BMY) but similarly valued. These stocks are The Unilever Group (NYSE:UL), McDonald’s Corporation (NYSE:MCD), PetroChina Company Limited (NYSE:PTR), and salesforce.com, inc. (NYSE:CRM). This group of stocks’ market values are similar to BMY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UL 17 247925 2
MCD 57 1633049 5
PTR 13 94057 0
CRM 112 9798571 3
Average 49.75 2943401 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.75 hedge funds with bullish positions and the average amount invested in these stocks was $2943 million. That figure was $7810 million in BMY’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Bristol Myers Squibb Company (NYSE:BMY) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on BMY, though not to the same extent, as the stock returned -2.4% in 2020 (through April 20th) and outperformed the market as well.
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.

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