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Hedge Funds Are Slowly Warming Up To Allergan plc (AGN)

Does Allergan plc (NYSE:AGN) represent a good buying opportunity at the moment? We know coronavirus is probably the #1 concern in your mind right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is actually a 3.3% probability that president Donald Trump will die from the new coronavirus (see the details). Coronavirus will probably cause a short recession and then things will get back to business as usual. That’s why we believe you should use this opportunity to identify the best stocks to invest for the future and add them to your portfolio at increasingly attractive prices. How do we find high quality stocks? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Allergan plc (NYSE:AGN) a marvelous investment now? The smart money is becoming hopeful. The number of bullish hedge fund bets rose by 2 lately. Our calculations also showed that AGN ranks 26th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). AGN was in 86 hedge funds’ portfolios at the end of December. There were 84 hedge funds in our database with AGN positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are several gauges market participants put to use to assess their holdings. A couple of the less known gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can outclass the market by a significant margin (see the details here).

PAULSON & CO

John Paulson of Paulson & Co

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a gander at the key hedge fund action surrounding Allergan plc (NYSE:AGN).

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

Heading into the first quarter of 2020, a total of 86 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AGN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Allergan plc (NYSE:AGN) was held by Adage Capital Management, which reported holding $1257.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $959.6 million position. Other investors bullish on the company included Third Point, Millennium Management, and Paulson & Co. In terms of the portfolio weights assigned to each position Governors Lane allocated the biggest weight to Allergan plc (NYSE:AGN), around 25.39% of its 13F portfolio. Twin Capital Management is also relatively very bullish on the stock, earmarking 24.74 percent of its 13F equity portfolio to AGN.

With a general bullishness amongst the heavyweights, some big names have jumped into Allergan plc (NYSE:AGN) headfirst. Abrams Capital Management, managed by David Abrams, established the largest position in Allergan plc (NYSE:AGN). Abrams Capital Management had $236.7 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $193.4 million position during the quarter. The other funds with brand new AGN positions are John Overdeck and David Siegel’s Two Sigma Advisors, Benjamin A. Smith’s Laurion Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s go over hedge fund activity in other stocks similar to Allergan plc (NYSE:AGN). These stocks are VMware, Inc. (NYSE:VMW), Takeda Pharmaceutical Company Limited (NYSE:TAK), Enterprise Products Partners L.P. (NYSE:EPD), and Raytheon Company (NYSE:RTN). This group of stocks’ market caps match AGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VMW 33 777041 -4
TAK 28 1186486 -3
EPD 28 340248 4
RTN 53 3458796 -1
Average 35.5 1440643 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1441 million. That figure was $9928 million in AGN’s case. Raytheon Company (NYSE:RTN) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 28 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Hedge funds were also right about betting on AGN as the stock returned 1.8% so far in Q1 (through March 2nd) 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.

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

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