Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Teva Pharmaceutical Industries Limited (NYSE:TEVA) changed recently.
Teva Pharmaceutical Industries Limited (NYSE:TEVA) investors should pay attention to a decrease in hedge fund interest recently. TEVA was in 25 hedge funds’ portfolios at the end of June. There were 32 hedge funds in our database with TEVA positions at the end of the previous quarter. Our calculations also showed that TEVA isn’t among the 30 most popular stocks among hedge funds (view the video below for details). Overall hedge fund sentiment towards TEVA is at its all time low.
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the new hedge fund action regarding Teva Pharmaceutical Industries Limited (NYSE:TEVA).
How have hedgies been trading Teva Pharmaceutical Industries Limited (NYSE:TEVA)?
At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in TEVA a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of Teva Pharmaceutical Industries Limited (NYSE:TEVA), with a stake worth $399.2 million reported as of the end of March. Trailing Berkshire Hathaway was Abrams Capital Management, which amassed a stake valued at $166.6 million. Renaissance Technologies, Miller Value Partners, and Camber Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Teva Pharmaceutical Industries Limited (NYSE:TEVA) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedgies that elected to cut their full holdings in the second quarter. Intriguingly, Mitch Kuflik and Rob Sobel’s Brahman Capital dumped the largest position of the “upper crust” of funds watched by Insider Monkey, worth about $110.8 million in stock, and Jonathon Jacobson’s Highfields Capital Management was right behind this move, as the fund cut about $83 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 7 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Teva Pharmaceutical Industries Limited (NYSE:TEVA) but similarly valued. These stocks are Apache Corporation (NYSE:APA), Camden Property Trust (NYSE:CPT), AXA Equitable Holdings, Inc. (NYSE:EQH), and Dropbox, Inc. (NASDAQ:DBX). This group of stocks’ market caps resemble TEVA’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 29 hedge funds with bullish positions and the average amount invested in these stocks was $741 million. That figure was $942 million in TEVA’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 19 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. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TEVA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TEVA investors were disappointed as the stock returned -25.5% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.