Hedge Funds Aren’t Done Buying Alcon Inc. (ALC)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Alcon Inc. (NYSE:ALC)?

Is Alcon Inc. (NYSE:ALC) a marvelous investment right now? Prominent investors are betting on the stock. The number of long hedge fund positions rose by 1 recently. Our calculations also showed that ALC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 58 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.

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action regarding Alcon Inc. (NYSE:ALC).

What have hedge funds been doing with Alcon Inc. (NYSE:ALC)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in ALC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is ALC A Good Stock To Buy?

The largest stake in Alcon Inc. (NYSE:ALC) was held by Ako Capital, which reported holding $144.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $131.6 million position. Other investors bullish on the company included Sirios Capital Management, D E Shaw, and Bridger Management. In terms of the portfolio weights assigned to each position Sirios Capital Management allocated the biggest weight to Alcon Inc. (NYSE:ALC), around 5.48% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, setting aside 5.37 percent of its 13F equity portfolio to ALC.

Consequently, some big names were leading the bulls’ herd. Renaissance Technologies, assembled the most valuable position in Alcon Inc. (NYSE:ALC). Renaissance Technologies had $22.8 million invested in the company at the end of the quarter. Anna Nikolayevsky’s Axel Capital Management also initiated a $4.1 million position during the quarter. The other funds with brand new ALC positions are Mark Coe’s Intrinsic Edge Capital, Mitch Rubin’s RiverPark Advisors, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks similar to Alcon Inc. (NYSE:ALC). We will take a look at AFLAC Incorporated (NYSE:AFL), DexCom, Inc. (NASDAQ:DXCM), China Telecom Corporation Limited (NYSE:CHA), and Lululemon Athletica inc. (NASDAQ:LULU). This group of stocks’ market valuations are closest to ALC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AFL 32 387153 0
DXCM 58 1211152 18
CHA 5 28440 -2
LULU 40 788852 -7
Average 33.75 603899 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $604 million. That figure was $605 million in ALC’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Alcon Inc. (NYSE:ALC) 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. 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately ALC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ALC investors were disappointed as the stock returned 20.5% during the second quarter 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.

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