Is Hutchison China MediTech Limited (HCM) A Good Stock To Buy?

In this article we will take a look at whether hedge funds think Hutchison China MediTech Limited (NASDAQ:HCM) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Hutchison China MediTech Limited (NASDAQ:HCM) a buy, sell, or hold? Money managers are taking a pessimistic view. The number of long hedge fund positions went down by 1 lately. Our calculations also showed that HCM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are dozens of indicators market participants can use to evaluate publicly traded companies. Two of the best indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outclass the broader indices by a superb amount (see the details here).

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the key hedge fund action surrounding Hutchison China MediTech Limited (NASDAQ:HCM).

What have hedge funds been doing with Hutchison China MediTech Limited (NASDAQ:HCM)?

At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in HCM 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.

The largest stake in Hutchison China MediTech Limited (NASDAQ:HCM) was held by Hudson Bay Capital Management, which reported holding $9.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $6.2 million position. Other investors bullish on the company included Platinum Asset Management, Maso Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Maso Capital allocated the biggest weight to Hutchison China MediTech Limited (NASDAQ:HCM), around 0.31% of its 13F portfolio. Hudson Bay Capital Management is also relatively very bullish on the stock, setting aside 0.23 percent of its 13F equity portfolio to HCM.

Judging by the fact that Hutchison China MediTech Limited (NASDAQ:HCM) has faced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds that elected to cut their full holdings in the first quarter. Interestingly, Israel Englander’s Millennium Management sold off the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $1.2 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Hutchison China MediTech Limited (NASDAQ:HCM). We will take a look at Holdings, Inc. (NYSE:BILL), Semtech Corporation (NASDAQ:SMTC), EQT Midstream Partners LP (NYSE:EQM), and The Timken Company (NYSE:TKR). All of these stocks’ market caps are closest to HCM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BILL 22 385025 -10
SMTC 17 145584 5
EQM 6 15334 -5
TKR 30 262596 -10
Average 18.75 202135 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $202 million. That figure was $19 million in HCM’s case. The Timken Company (NYSE:TKR) is the most popular stock in this table. On the other hand EQT Midstream Partners LP (NYSE:EQM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Hutchison China MediTech Limited (NASDAQ:HCM) is even less popular than EQM. Hedge funds clearly dropped the ball on HCM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on HCM as the stock returned 29.5% so far in the second quarter and outperformed the market by an even larger margin.

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