Illumina, Inc. (ILMN): Are Hedge Funds Right About This Stock?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

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 Illumina, Inc. (NASDAQ:ILMN) 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 Illumina, Inc. (NASDAQ:ILMN) a safe investment today? Investors who are in the know are getting more optimistic. The number of long hedge fund bets increased by 3 recently. Our calculations also showed that ILMN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to go over the fresh hedge fund action regarding Illumina, Inc. (NASDAQ:ILMN).

How have hedgies been trading Illumina, Inc. (NASDAQ:ILMN)?

Heading into the first quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 44 hedge funds held shares or bullish call options in ILMN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is ILMN A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the largest position in Illumina, Inc. (NASDAQ:ILMN), worth close to $194.2 million, comprising 1.2% of its total 13F portfolio. The second most bullish fund manager is Lone Pine Capital, holding a $172.4 million position; 0.9% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism include Panayotis Takis Sparaggis’s Alkeon Capital Management, Andreas Halvorsen’s Viking Global and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Illumina, Inc. (NASDAQ:ILMN), around 7.25% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, setting aside 4.79 percent of its 13F equity portfolio to ILMN.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Generation Investment Management, managed by David Blood and Al Gore, established the most valuable position in Illumina, Inc. (NASDAQ:ILMN). Generation Investment Management had $194.2 million invested in the company at the end of the quarter. Lone Pine Capital also initiated a $172.4 million position during the quarter. The other funds with brand new ILMN positions are Arthur B Cohen and Joseph Healey’s Healthcor Management LP, Kevin Molloy’s Iron Triangle Partners, and Robert Joseph Caruso’s Select Equity Group.

Let’s go over hedge fund activity in other stocks similar to Illumina, Inc. (NASDAQ:ILMN). These stocks are EOG Resources Inc (NYSE:EOG), Edwards Lifesciences Corporation (NYSE:EW), Humana Inc (NYSE:HUM), and Waste Management, Inc. (NYSE:WM). This group of stocks’ market caps are similar to ILMN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EOG 43 1486121 -10
EW 45 1283127 9
HUM 75 4982047 10
WM 32 3261844 -20
Average 48.75 2753285 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.75 hedge funds with bullish positions and the average amount invested in these stocks was $2753 million. That figure was $1121 million in ILMN’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Illumina, Inc. (NASDAQ:ILMN) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately ILMN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ILMN investors were disappointed as the stock returned -25.8% 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 most of these stocks already outperformed the market in Q1.

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