Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Teva Pharmaceutical Industries Limited (NYSE:TEVA).
Is TEVA a good stock to buy? The best stock pickers were in a bullish mood. The number of long hedge fund bets increased by 2 recently. Teva Pharmaceutical Industries Limited (NYSE:TEVA) was in 33 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 81. Our calculations also showed that TEVA 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). There were 31 hedge funds in our database with TEVA holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind let’s take a peek at the recent hedge fund action surrounding Teva Pharmaceutical Industries Limited (NYSE:TEVA).
Do Hedge Funds Think TEVA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TEVA over the last 21 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of Teva Pharmaceutical Industries Limited (NYSE:TEVA), with a stake worth $385.5 million reported as of the end of September. Trailing Berkshire Hathaway was Abrams Capital Management, which amassed a stake valued at $216.7 million. Miller Value Partners, Camber Capital Management, and Arrowstreet Capital 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 Abrams Capital Management allocated the biggest weight to Teva Pharmaceutical Industries Limited (NYSE:TEVA), around 6.85% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, earmarking 4.85 percent of its 13F equity portfolio to TEVA.
Now, key hedge funds were leading the bulls’ herd. Eversept Partners, managed by Kamran Moghtaderi, established the biggest position in Teva Pharmaceutical Industries Limited (NYSE:TEVA). Eversept Partners had $21.6 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $1.8 million position during the quarter. The following funds were also among the new TEVA investors: Steve Cohen’s Point72 Asset Management, Lee Ainslie’s Maverick Capital, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Teva Pharmaceutical Industries Limited (NYSE:TEVA) but similarly valued. These stocks are Essential Utilities Inc (NYSE:WTRG), Fastly, Inc. (NYSE:FSLY), Enel Americas S.A. (NYSE:ENIA), Credicorp Ltd. (NYSE:BAP), CBOE Global Markets Inc (NASDAQ:CBOE), Zynga Inc (NASDAQ:ZNGA), and Sunrun Inc (NASDAQ:RUN). This group of stocks’ market valuations are closest to TEVA’s market valuation.
|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 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $1076 million. That figure was $916 million in TEVA’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 11 bullish hedge fund positions. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEVA is 49. 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 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on TEVA, though not to the same extent, as the stock returned 11.1% since Q3 (through December 18th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.