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 Teva Pharmaceutical Industries Limited (NYSE:TEVA) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Teva Pharmaceutical Industries Limited (NYSE:TEVA) the right investment to pursue these days? The smart money was getting more bullish. The number of long hedge fund positions moved up by 2 lately. Teva Pharmaceutical Industries Limited (NYSE:TEVA) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 81. Our calculations also showed that TEVA 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 29 hedge funds in our database with TEVA holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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 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. With all of this in mind we’re going to view the fresh hedge fund action regarding Teva Pharmaceutical Industries Limited (NYSE:TEVA).
What have hedge funds been doing with Teva Pharmaceutical Industries Limited (NYSE:TEVA)?
At the end of June, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in TEVA a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in Teva Pharmaceutical Industries Limited (NYSE:TEVA), which was worth $527.6 million at the end of the third quarter. On the second spot was Abrams Capital Management which amassed $296.5 million worth of shares. Miller Value Partners, Arrowstreet Capital, and Renaissance Technologies 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 Noked Capital allocated the biggest weight to Teva Pharmaceutical Industries Limited (NYSE:TEVA), around 26.07% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, earmarking 9.58 percent of its 13F equity portfolio to TEVA.
As industrywide interest jumped, key hedge funds were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, assembled the most valuable position in Teva Pharmaceutical Industries Limited (NYSE:TEVA). LMR Partners had $34 million invested in the company at the end of the quarter. Christopher James’s Partner Fund Management also made a $25.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Stephen DuBois’s Camber Capital Management, Samuel Isaly’s OrbiMed Advisors, and Thomas Bailard’s Bailard Inc.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Teva Pharmaceutical Industries Limited (NYSE:TEVA) but similarly valued. We will take a look at Nomura Holdings, Inc. (NYSE:NMR), Evergy, Inc. (NYSE:EVRG), Bio-Rad Laboratories, Inc. (NYSE:BIO), Vipshop Holdings Limited (NYSE:VIPS), Altice USA, Inc. (NYSE:ATUS), M&T Bank Corporation (NYSE:MTB), and Sun Communities Inc (NYSE:SUI). This group of stocks’ market valuations are closest to TEVA’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $917 million. That figure was $1286 million in TEVA’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TEVA is 43.5. 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 negative signal and 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately TEVA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TEVA investors were disappointed as the stock returned -26.3% since Q2 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.