In this article we are going to use hedge fund sentiment as a tool and determine whether Legend Biotech Corporation (NASDAQ:LEGN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is LEGN a good stock to buy now? Investors who are in the know were in a bearish mood. The number of bullish hedge fund bets fell by 15 recently. Legend Biotech Corporation (NASDAQ:LEGN) was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 28. Our calculations also showed that LEGN 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.
To most market participants, hedge funds are seen as slow, outdated investment tools of the past. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the crème de la crème of this group, about 850 funds. These hedge fund managers handle bulk of all hedge funds’ total capital, and by observing their unrivaled investments, Insider Monkey has come up with many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
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 let’s go over the key hedge fund action surrounding Legend Biotech Corporation (NASDAQ:LEGN).
Do Hedge Funds Think LEGN Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -54% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in LEGN over the last 21 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Vivo Capital was the largest shareholder of Legend Biotech Corporation (NASDAQ:LEGN), with a stake worth $102.8 million reported as of the end of September. Trailing Vivo Capital was Hudson Bay Capital Management, which amassed a stake valued at $84.2 million. RA Capital Management, Adage Capital Management, and Hillhouse Capital Management 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 Vivo Capital allocated the biggest weight to Legend Biotech Corporation (NASDAQ:LEGN), around 5.94% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to LEGN.
Judging by the fact that Legend Biotech Corporation (NASDAQ:LEGN) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who were dropping their positions entirely heading into Q4. Intriguingly, Richard Driehaus’s Driehaus Capital sold off the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $15.5 million in stock. Shashin Shah’s fund, Think Investments, also sold off its stock, about $13.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 15 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to Legend Biotech Corporation (NASDAQ:LEGN). These stocks are Allakos Inc. (NASDAQ:ALLK), Integra Lifesciences Holdings Corp (NASDAQ:IART), Allison Transmission Holdings Inc (NYSE:ALSN), Wright Medical Group N.V. (NASDAQ:WMGI), Medpace Holdings, Inc. (NASDAQ:MEDP), Healthequity Inc (NASDAQ:HQY), and YETI Holdings, Inc. (NYSE:YETI). This group of stocks’ market values are similar to LEGN’s market value.
|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 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $386 million. That figure was $372 million in LEGN’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 9 bullish hedge fund positions. Legend Biotech Corporation (NASDAQ:LEGN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LEGN is 10.4. 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 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately LEGN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LEGN investors were disappointed as the stock returned -2.2% since the end of September (through 12/8) 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.