How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Gilead Sciences, Inc. (NASDAQ:GILD).
Is Gilead (GILD) stock a buy or sell? The smart money was taking a bullish view. The number of long hedge fund bets advanced by 11 lately. Gilead Sciences, Inc. (NASDAQ:GILD) was in 72 hedge funds’ portfolios at the end of December. The all time high for this statistic is 93. Our calculations also showed that GILD isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Gilead Sciences, Inc. (NASDAQ:GILD).
Do Hedge Funds Think GILD Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 72 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. By comparison, 67 hedge funds held shares or bullish call options in GILD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Gilead Sciences, Inc. (NASDAQ:GILD). Renaissance Technologies has a $371.4 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $233.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John W. Rogers’s Ariel Investments and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Gilead Sciences, Inc. (NASDAQ:GILD), around 9.81% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, designating 3.99 percent of its 13F equity portfolio to GILD.
As one would reasonably expect, specific money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, created the largest position in Gilead Sciences, Inc. (NASDAQ:GILD). Holocene Advisors had $71.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $35.7 million investment in the stock during the quarter. The other funds with brand new GILD positions are Nicholas Bagnall’s Te Ahumairangi Investment Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Gilead Sciences, Inc. (NASDAQ:GILD) but similarly valued. We will take a look at Becton, Dickinson and Company (NYSE:BDX), KE Holdings Inc (NYSE:BEKE), Infosys Limited (NYSE:INFY), Activision Blizzard, Inc. (NASDAQ:ATVI), China Petroleum & Chemical Corp (NYSE:SNP), U.S. Bancorp (NYSE:USB), and Chubb Limited (NYSE:CB). This group of stocks’ market caps resemble GILD’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 43.7 hedge funds with bullish positions and the average amount invested in these stocks was $3002 million. That figure was $2022 million in GILD’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 13 bullish hedge fund positions. Gilead Sciences, Inc. (NASDAQ:GILD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GILD is 76.6. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on GILD as the stock returned 6.9% since the end of Q4 (through 3/12) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Gilead Sciences Inc. (NASDAQ:GILD)
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Disclosure: None. This article was originally published at Insider Monkey.