How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Amgen, Inc. (NASDAQ:AMGN) and determine whether hedge funds had an edge regarding this stock.
Is Amgen, Inc. (NASDAQ:AMGN) going to take off soon? Investors who are in the know were getting less bullish. The number of long hedge fund bets were trimmed by 1 lately. Amgen, Inc. (NASDAQ:AMGN) was in 51 hedge funds’ portfolios at the end of June. Our calculations also showed that AMGN 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 52 hedge funds in our database with AMGN holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s review the new hedge fund action surrounding Amgen, Inc. (NASDAQ:AMGN).
How have hedgies been trading Amgen, Inc. (NASDAQ:AMGN)?
Heading into the third quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the first quarter of 2020. On the other hand, there were a total of 42 hedge funds with a bullish position in AMGN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the number one position in Amgen, Inc. (NASDAQ:AMGN). Renaissance Technologies has a $380.1 million position in the stock, comprising 0.3% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $320.8 million position; 0.5% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism comprise Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Amgen, Inc. (NASDAQ:AMGN), around 8.53% of its 13F portfolio. Valueworks LLC is also relatively very bullish on the stock, earmarking 3.61 percent of its 13F equity portfolio to AMGN.
Seeing as Amgen, Inc. (NASDAQ:AMGN) has experienced a decline in interest from hedge fund managers, we can see that there is a sect of funds who sold off their entire stakes in the second quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group dropped the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $51 million in stock, and Michael Castor’s Sio Capital was right behind this move, as the fund cut about $21.5 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Amgen, Inc. (NASDAQ:AMGN) but similarly valued. We will take a look at China Mobile Limited (NYSE:CHL), McDonald’s Corporation (NYSE:MCD), Accenture Plc (NYSE:ACN), Costco Wholesale Corporation (NASDAQ:COST), Bristol Myers Squibb Company (NYSE:BMY), T-Mobile US, Inc. (NASDAQ:TMUS), and Sanofi (NASDAQ:SNY). This group of stocks’ market caps resemble AMGN’s market cap.
|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 63.4 hedge funds with bullish positions and the average amount invested in these stocks was $3230 million. That figure was $1794 million in AMGN’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 9 bullish hedge fund positions. Amgen, Inc. (NASDAQ:AMGN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AMGN is 45.2. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately AMGN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AMGN investors were disappointed as the stock returned 8.1% 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.