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Hedge Funds Have Been This Bullish On Biohaven Pharmaceutical (BHVN)

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 Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) and determine whether hedge funds had an edge regarding this stock.

Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) has experienced an increase in hedge fund sentiment recently. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BHVN 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

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 we’re going to take a look at the latest hedge fund action encompassing Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).

Hedge fund activity in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)

At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 45% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BHVN over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) was held by Marshall Wace LLP, which reported holding $182.9 million worth of stock at the end of September. It was followed by Kingdon Capital with a $95.2 million position. Other investors bullish on the company included Tang Capital Management, Knoll Capital Management, and Great Point Partners. In terms of the portfolio weights assigned to each position Knoll Capital Management allocated the biggest weight to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), around 35.84% of its 13F portfolio. Blackcrane Capital is also relatively very bullish on the stock, setting aside 10.16 percent of its 13F equity portfolio to BHVN.

Consequently, key money managers were leading the bulls’ herd. Tang Capital Management, managed by Kevin C. Tang, established the most outsized position in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). Tang Capital Management had $71.7 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also initiated a $39.2 million position during the quarter. The following funds were also among the new BHVN investors: Principal Global Investors’s Columbus Circle Investors, Larry Robbins’s Glenview Capital, and James A. Silverman’s Opaleye Management.

Let’s now review hedge fund activity in other stocks similar to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). We will take a look at Tetra Tech, Inc. (NASDAQ:TTEK), Lancaster Colony Corporation (NASDAQ:LANC), Inovio Pharmaceuticals Inc (NASDAQ:INO), FTI Consulting, Inc. (NYSE:FCN), Tata Motors Limited (NYSE:TTM), Blueprint Medicines Corporation (NASDAQ:BPMC), and Under Armour Inc (NYSE:UA). This group of stocks’ market values are similar to BHVN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTEK 19 90700 -2
LANC 19 246200 -4
INO 14 117679 6
FCN 32 377924 13
TTM 9 36380 -1
BPMC 38 1004517 2
UA 40 558888 3
Average 24.4 347470 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $916 million in BHVN’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is more popular among hedge funds. Our overall hedge fund sentiment score for BHVN is 90. 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. 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 still beat the market by 23.2 percentage points. Unfortunately BHVN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHVN were disappointed as the stock returned -13.3% since the end of 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.