In this article we are going to use hedge fund sentiment as a tool and determine whether Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) 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 Vertex Pharmaceuticals (VRTX) a good stock to buy now? VRTX has experienced an increase in hedge fund sentiment of late. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 55 hedge funds’ portfolios at the end of September. The all time high for this statistics is 56. Our calculations also showed that VRTX 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium 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. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).
How are hedge funds trading Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?
At the end of September, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VRTX over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), with a stake worth $1416.9 million reported as of the end of September. Trailing Renaissance Technologies was GQG Partners, which amassed a stake valued at $377.4 million. Citadel Investment Group, Two Sigma Advisors, and GLG Partners 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 Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 11.66% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, dishing out 3.95 percent of its 13F equity portfolio to VRTX.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) headfirst. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Citadel Investment Group had $248.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $35.4 million investment in the stock during the quarter. The other funds with brand new VRTX positions are Benjamin A. Smith’s Laurion Capital Management, Sander Gerber’s Hudson Bay Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. We will take a look at KE Holdings Inc (NYSE:BEKE), Snowflake Inc (NYSE:SNOW), Booking Holdings Inc. (NASDAQ:BKNG), Crown Castle International Corp. (NYSE:CCI), Deere & Company (NYSE:DE), Goldman Sachs Group, Inc. (NYSE:GS), and Fiserv, Inc. (NASDAQ:FISV). All of these stocks’ market caps are similar to VRTX’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 63.4 hedge funds with bullish positions and the average amount invested in these stocks was $3584 million. That figure was $3419 million in VRTX’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand KE Holdings Inc (NYSE:BEKE) is the least popular one with only 28 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VRTX is 51.3. 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 31.6% in 2020 through December 2nd and surpassed the market again by 16 percentage points. Unfortunately VRTX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VRTX investors were disappointed as the stock returned -16.7% since the end of September (through 12/2) 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.
Disclosure: None. This article was originally published at Insider Monkey.