Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Perrigo Company plc (NYSE:PRGO) was in 21 hedge funds’ portfolios at the end of September. PRGO has seen a decrease in support from the world’s most elite money managers lately. There were 25 hedge funds in our database with PRGO positions at the end of the previous quarter. Our calculations also showed that PRGO 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.
We’re going to go over the latest hedge fund action regarding Perrigo Company plc (NYSE:PRGO).
What does the smart money think about Perrigo Company plc (NYSE:PRGO)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PRGO over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Starboard Value LP held the most valuable stake in Perrigo Company plc (NYSE:PRGO), which was worth $710.9 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $136.2 million worth of shares. Moreover, Camber Capital Management, D E Shaw, and PDT Partners were also bullish on Perrigo Company plc (NYSE:PRGO), allocating a large percentage of their portfolios to this stock.
Because Perrigo Company plc (NYSE:PRGO) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that decided to sell off their entire stakes heading into Q3. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $20.5 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund sold off about $7.7 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Perrigo Company plc (NYSE:PRGO). These stocks are EXACT Sciences Corporation (NASDAQ:EXAS), Steris Plc (NYSE:STE), Qorvo Inc (NASDAQ:QRVO), and UGI Corp (NYSE:UGI). This group of stocks’ market values resemble PRGO’s market value.
|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 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $739 million. That figure was $1.05 billion in PRGO’s case. EXACT Sciences Corporation (NASDAQ:EXAS) is the most popular stock in this table. On the other hand UGI Corp (NYSE:UGI) is the least popular one with only 19 bullish hedge fund positions. Perrigo Company plc (NYSE:PRGO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EXAS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.