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Is The Medicines Company (MDCO) A Good Stock To Buy?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at The Medicines Company (NASDAQ:MDCO) from the perspective of those elite funds.

The Medicines Company (NASDAQ:MDCO) was in 19 hedge funds’ portfolios at the end of September. The Medicines Company (NASDAQ:MDCO) has seen a decrease in hedge fund sentiment in recent months. There were 20 hedge funds in our database with The Medicines Company (NASDAQ:MDCO) positions at the end of the previous quarter. At the end of this article we will also compare The Medicines Company (NASDAQ:MDCO) to other stocks including NorthWestern Corp (NYSE:NWE), Prospect Capital Corporation (NASDAQ:PSEC), and Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) to get a better sense of its popularity.

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According to most shareholders, hedge funds are assumed to be unimportant, outdated investment vehicles of years past. While there are greater than 8000 funds with their doors open today, Hedge fund experts at Insider Monkey look at the crème de la crème of this group, around 700 funds. These money managers administer bulk of the smart money’s total capital, and by keeping an eye on their highest performing equity investments, Insider Monkey has come up with several investment strategies that have historically outperformed Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, let’s take a look at the recent action encompassing The Medicines Company (NASDAQ:MDCO).

What does the smart money think about The Medicines Company (NASDAQ:MDCO)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish in this stock, a drop of 5% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the hedgies followed by Insider Monkey, Keith Meister’s Corvex Capital had the biggest position in The Medicines Company (NASDAQ:MDCO), worth close to $117.2 million, amounting to 1.4% of its total 13F portfolio. Sitting at the No. 2 spot is Camber Capital Management, managed by Stephen DuBois, which held a $94.9 million position; the fund has 8.1% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Roberto Mignone’s Bridger Management, Eric Chen’s Antipodean Advisors and Israel Englander’s Millennium Management.

Seeing as The Medicines Company (NASDAQ:MDCO) has witnessed falling interest from hedge fund managers, it’s easy to see that there was a specific group of funds who sold off their positions entirely at the end of the third quarter. It’s worth mentioning that Peter Kolchinsky’s RA Capital Management cut the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $20.2 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital was right behind this move, as the fund sold off about $5.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds at the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to The Medicines Company (NASDAQ:MDCO). We will take a look at NorthWestern Corp (NYSE:NWE), Prospect Capital Corporation (NASDAQ:PSEC), Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP), and MFA Financial, Inc. (NYSE:MFA). This group of stocks’ market valuations are closest to The Medicines Company (NASDAQ:MDCO)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWE 12 62313 3
PSEC 12 28133 0
RHP 18 456345 -2
MFA 17 51509 3

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. As you can see, The Medicines Company is more popular than these stocks, which might serve as a signal that it may be worth an addition to your portfolio. However, the hedge fund bullishness alone is not a certain indicator, but this could narrow down your search for the next investment.

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