Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and compare its performance to hedge funds’ consensus picks in 2019.
Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) has experienced an increase in enthusiasm from smart money of late. ALXN was in 46 hedge funds’ portfolios at the end of the third quarter of 2019. There were 44 hedge funds in our database with ALXN positions at the end of the previous quarter. Our calculations also showed that ALXN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to review the key hedge fund action regarding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
How have hedgies been trading Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)?
Heading into the fourth quarter of 2019, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in ALXN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baker Bros. Advisors was the largest shareholder of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), with a stake worth $808.8 million reported as of the end of September. Trailing Baker Bros. Advisors was Renaissance Technologies, which amassed a stake valued at $279.1 million. Iridian Asset Management, OrbiMed Advisors, and D E Shaw 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 Palo Alto Investors allocated the biggest weight to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), around 6.25% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, setting aside 5.5 percent of its 13F equity portfolio to ALXN.
As aggregate interest increased, specific money managers have been driving this bullishness. Partner Fund Management, managed by Christopher James, created the largest position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Partner Fund Management had $141.7 million invested in the company at the end of the quarter. Jeremy Green’s Redmile Group also initiated a $113.8 million position during the quarter. The other funds with brand new ALXN positions are Ian Simm’s Impax Asset Management, Efrem Kamen’s Pura Vida Investments, and Matthew Halbower’s Pentwater Capital Management.
Let’s now review hedge fund activity in other stocks similar to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). We will take a look at Kellogg Company (NYSE:K), Hartford Financial Services Group Inc (NYSE:HIG), Stanley Black & Decker, Inc. (NYSE:SWK), and Snap Inc. (NYSE:SNAP). This group of stocks’ market caps are similar to ALXN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| K | 27 | 629331 | -1 |
| HIG | 32 | 848897 | 2 |
| SWK | 26 | 1040404 | -1 |
| SNAP | 52 | 2118425 | 7 |
| Average | 34.25 | 1159264 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1159 million. That figure was $2582 million in ALXN’s case. Snap Inc. (NYSE:SNAP) is the most popular stock in this table. On the other hand Stanley Black & Decker, Inc. (NYSE:SWK) is the least popular one with only 26 bullish hedge fund positions. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ALXN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALXN were disappointed as the stock returned 13.5% in 2019 (through December 23rd) 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 this year.
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.
