While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Sanofi (NYSE:SNY).
Is SNY a good stock to buy now? Prominent investors were selling. The number of long hedge fund bets retreated by 4 recently. Sanofi (NYSE:SNY) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 32. Our calculations also showed that SNY 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 check out the recent hedge fund action encompassing Sanofi (NYSE:SNY).
Do Hedge Funds Think SNY Is A Good Stock To Buy Now?
At third quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in SNY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Sanofi (NYSE:SNY) was held by Fisher Asset Management, which reported holding $934.4 million worth of stock at the end of September. It was followed by Redmile Group with a $87.4 million position. Other investors bullish on the company included Sphera Global Healthcare Fund, Arrowstreet Capital, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Sphera Global Healthcare Fund allocated the biggest weight to Sanofi (NYSE:SNY), around 5.52% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 1.92 percent of its 13F equity portfolio to SNY.
Because Sanofi (NYSE:SNY) has faced a decline in interest from hedge fund managers, we can see that there was a specific group of funds who were dropping their entire stakes last quarter. At the top of the heap, Vishal Saluja and Pham Quang’s Endurant Capital Management dropped the biggest position of the 750 funds tracked by Insider Monkey, comprising about $5.1 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund cut about $3.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sanofi (NYSE:SNY) but similarly valued. We will take a look at Lowe’s Companies, Inc. (NYSE:LOW), Linde plc (NYSE:LIN), Shopify Inc (NYSE:SHOP), Royal Dutch Shell plc (NYSE:RDS), Philip Morris International Inc. (NYSE:PM), Honeywell International Inc. (NYSE:HON), and International Business Machines Corp. (NYSE:IBM). All of these stocks’ market caps resemble SNY’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 55.1 hedge funds with bullish positions and the average amount invested in these stocks was $3248 million. That figure was $1245 million in SNY’s case. Lowe’s Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Sanofi (NYSE:SNY) is even less popular than RDS. Our overall hedge fund sentiment score for SNY is 19.8. 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. Hedge funds dodged a bullet by taking a bearish stance towards SNY. Our calculations showed that the top 20 most popular hedge fund stocks 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 but managed to beat the market again by 15.8 percentage points. Unfortunately SNY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SNY investors were disappointed as the stock returned -6.9% since the end of the third quarter (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 so far in 2020.
Follow Sanofi Aventis (NYSE:SNY)
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Disclosure: None. This article was originally published at Insider Monkey.