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What Does Hedge Fund Sentiment Say About Merck & Co., Inc. (MRK)?

Does Merck & Co., Inc. (NYSE:MRK) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund sentiment towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Merck & Co., Inc. (NYSE:MRK) a buy, sell, or hold? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions were cut by 12 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as PepsiCo, Inc. (NYSE:PEP), Cisco Systems, Inc. (NASDAQ:CSCO), and PetroChina Company Limited (ADR) (NYSE:PTR) to gather more data points.

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At the moment there are tons of formulas stock market investors use to size up publicly traded companies. A pair of the best formulas is composed of hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outclass the broader indices by a significant margin (see the details here).

Keeping this in mind, let’s review the key action encompassing Merck & Co., Inc. (NYSE:MRK).

What have hedge funds been doing with Merck & Co., Inc. (NYSE:MRK)?

Heading into Q4, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter. With the smart money’s capital changing hands, there exist a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the largest position in Merck & Co., Inc. (NYSE:MRK), worth close to $340.5 million, amounting to 0.7% of its total 13F portfolio. On AQR Capital Management’s heels is Fisher Asset Management, managed by Ken Fisher, which holds a $334 million position; 0.7% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass William B. Gray’s Orbis Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Bill Miller’s Legg Mason Capital Management.

Because Merck & Co., Inc. (NYSE:MRK) has witnessed falling interest from the smart money, it’s safe to say that there exist a select few hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Malcolm Fairbairn’s Ascend Capital dropped the biggest investment of all the hedgies followed by Insider Monkey, worth about $62.5 million in call options.. Hal Mintz’s fund, Sabby Capital, also sold off its call options., about $56.9 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 12 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Merck & Co., Inc. (NYSE:MRK) but similarly valued. These stocks are PepsiCo, Inc. (NYSE:PEP), Cisco Systems, Inc. (NASDAQ:CSCO), PetroChina Company Limited (ADR) (NYSE:PTR), and Reynolds American, Inc. (NYSE:RAI). This group of stocks’ market values are similar to MRK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEP 57 6739297 0
CSCO 67 4240851 -5
PTR 10 141088 -2
RAI 33 1947876 -8

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $3267 million. That figure was $2250 million in MRK’s case. Cisco Systems, Inc. (NASDAQ:CSCO) is the most popular stock in this table. On the other hand PetroChina Company Limited (ADR) (NYSE:PTR) is the least popular one with only 10 bullish hedge fund positions. Although Merck & Co., Inc. (NYSE:MRK) with 62 bullish hedge fund positions is not the most popular stock in this group, hedge fund interest is still above average. Even though this may seem as a good sign, we’d rather spend our time researching stocks that hedge funds are hedge funds are collectively most bullish on. In this regard, CSCO might be a better candidate to consider a long position.

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