We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Agios Pharmaceuticals Inc (NASDAQ:AGIO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Agios Pharmaceuticals Inc (NASDAQ:AGIO) the right investment to pursue these days? Money managers are getting more optimistic. The number of bullish hedge fund positions advanced by 6 in recent months. Our calculations also showed that AGIO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Agios Pharmaceuticals Inc (NASDAQ:AGIO).
What have hedge funds been doing with Agios Pharmaceuticals Inc (NASDAQ:AGIO)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AGIO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Farallon Capital held the most valuable stake in Agios Pharmaceuticals Inc (NASDAQ:AGIO), which was worth $59.7 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $43 million worth of shares. Casdin Capital, Healthcor Management LP, and Rock Springs Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Agios Pharmaceuticals Inc (NASDAQ:AGIO), around 3.62% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 3.53 percent of its 13F equity portfolio to AGIO.
With a general bullishness amongst the heavyweights, some big names have jumped into Agios Pharmaceuticals Inc (NASDAQ:AGIO) headfirst. Farallon Capital created the largest position in Agios Pharmaceuticals Inc (NASDAQ:AGIO). Farallon Capital had $59.7 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also initiated a $43 million position during the quarter. The following funds were also among the new AGIO investors: Arthur B Cohen and Joseph Healey’s Healthcor Management LP, Bhagwan Jay Rao’s Integral Health Asset Management, and Eric Bannasch’s Cadian Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Agios Pharmaceuticals Inc (NASDAQ:AGIO) but similarly valued. We will take a look at Magnolia Oil & Gas Corporation (NASDAQ:MGY), LiveRamp Holdings, Inc. (NYSE:RAMP), GW Pharmaceuticals plc (NASDAQ:GWPH), and Qualys Inc (NASDAQ:QLYS). All of these stocks’ market caps are closest to AGIO’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 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $310 million in AGIO’s case. Qualys Inc (NASDAQ:QLYS) is the most popular stock in this table. On the other hand Magnolia Oil & Gas Corporation (NASDAQ:MGY) is the least popular one with only 18 bullish hedge fund positions. Agios Pharmaceuticals Inc (NASDAQ:AGIO) is not the most popular stock in this group but hedge fund interest is still above average. 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 lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on AGIO, though not to the same extent, as the stock returned -21.8% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.