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Here’s What Hedge Funds Think About Dr. Reddy’s Laboratories Limited (RDY)

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Dr. Reddy’s Laboratories Limited (NYSE:RDY) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. RDY was in 11 hedge funds’ portfolios at the end of the first quarter of 2019. There were 10 hedge funds in our database with RDY positions at the end of the previous quarter. Our calculations also showed that rdy isn’t among the 30 most popular stocks among hedge funds.

According to most traders, hedge funds are assumed to be worthless, outdated investment tools of the past. While there are more than 8000 funds trading at the moment, Our researchers look at the elite of this group, about 750 funds. These hedge fund managers orchestrate most of the hedge fund industry’s total asset base, and by tracking their unrivaled investments, Insider Monkey has come up with many investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).

Gifford Combs - Dalton Investments

Let’s take a look at the fresh hedge fund action surrounding Dr. Reddy’s Laboratories Limited (NYSE:RDY).

Hedge fund activity in Dr. Reddy’s Laboratories Limited (NYSE:RDY)

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in RDY a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with RDY Positions

More specifically, Renaissance Technologies was the largest shareholder of Dr. Reddy’s Laboratories Limited (NYSE:RDY), with a stake worth $43.1 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $20.4 million. D E Shaw, Dalton Investments, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most valuable position in Dr. Reddy’s Laboratories Limited (NYSE:RDY). Millennium Management had $1.3 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new RDY investors: Ken Griffin’s Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to Dr. Reddy’s Laboratories Limited (NYSE:RDY). We will take a look at Israel Chemicals Ltd. (NYSE:ICL), Fortune Brands Home & Security Inc (NYSE:FBHS), AptarGroup, Inc. (NYSE:ATR), and Amarin Corporation plc (NASDAQ:AMRN). All of these stocks’ market caps resemble RDY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICL 4 54026 -1
FBHS 29 568628 -2
ATR 15 81382 -2
AMRN 26 1959411 2
Average 18.5 665862 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $91 million in RDY’s case. Fortune Brands Home & Security Inc (NYSE:FBHS) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 4 bullish hedge fund positions. Dr. Reddy’s Laboratories Limited (NYSE:RDY) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RDY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RDY investors were disappointed as the stock returned -8.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.

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

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