Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Emergent Biosolutions Inc (NYSE:EBS)? The smart money sentiment can provide an answer to this question.
Is EBS a good stock to buy now? Emergent Biosolutions Inc (NYSE:EBS) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EBS investors should be aware of an increase in hedge fund interest of late. There were 21 hedge funds in our database with EBS holdings at the end of June. Our calculations also showed that EBS isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to go over the latest hedge fund action regarding Emergent Biosolutions Inc (NYSE:EBS).
Do Hedge Funds Think EBS Is A Good Stock To Buy Now?
At the end of September, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in EBS a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Emergent Biosolutions Inc (NYSE:EBS), which was worth $51.9 million at the end of the third quarter. On the second spot was GLG Partners which amassed $17.6 million worth of shares. Two Sigma Advisors, Millennium Management, and Royce & Associates 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 Sectoral Asset Management allocated the biggest weight to Emergent Biosolutions Inc (NYSE:EBS), around 0.71% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to EBS.
As aggregate interest increased, key money managers have jumped into Emergent Biosolutions Inc (NYSE:EBS) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in Emergent Biosolutions Inc (NYSE:EBS). Two Sigma Advisors had $15.9 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $2.5 million position during the quarter. The other funds with brand new EBS positions are Greg Eisner’s Engineers Gate Manager, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ran Pang’s Quantamental Technologies.
Let’s now take a look at hedge fund activity in other stocks similar to Emergent Biosolutions Inc (NYSE:EBS). These stocks are Lincoln Electric Holdings, Inc. (NASDAQ:LECO), Leggett & Platt, Inc. (NYSE:LEG), Clearway Energy, Inc. (NYSE:CWEN), Yamana Gold Inc. (NYSE:AUY), Plug Power, Inc. (NASDAQ:PLUG), SiteOne Landscape Supply, Inc. (NYSE:SITE), and The AZEK Company Inc. (NYSE:AZEK). All of these stocks’ market caps match EBS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $152 million in EBS’s case. The AZEK Company Inc. (NYSE:AZEK) is the most popular stock in this table. On the other hand Yamana Gold Inc. (NYSE:AUY) is the least popular one with only 17 bullish hedge fund positions. Emergent Biosolutions Inc (NYSE:EBS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EBS is 50.7. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately EBS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EBS investors were disappointed as the stock returned -16% since the end of September (through 12/14) 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 2020.
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Disclosure: None. This article was originally published at Insider Monkey.