Should I Avoid Endo International plc (ENDP)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Endo International plc (NASDAQ:ENDP) based on that data and determine whether they were really smart about the stock.

Is Endo International plc (NASDAQ:ENDP) a buy right now? Investors who are in the know were selling. The number of long hedge fund bets were trimmed by 1 lately. Endo International plc (NASDAQ:ENDP) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 61. Our calculations also showed that ENDP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 22 hedge funds in our database with ENDP holdings at the end of March.

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 58 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.


Larry Robbins of Glenview Capital

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Endo International plc (NASDAQ:ENDP).

What have hedge funds been doing with Endo International plc (NASDAQ:ENDP)?

Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2020. On the other hand, there were a total of 21 hedge funds with a bullish position in ENDP a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Endo International plc (NASDAQ:ENDP) was held by Renaissance Technologies, which reported holding $58.5 million worth of stock at the end of September. It was followed by Paulson & Co with a $33 million position. Other investors bullish on the company included Glenview Capital, Miller Value Partners, and Centerbridge Partners. In terms of the portfolio weights assigned to each position Miller Value Partners allocated the biggest weight to Endo International plc (NASDAQ:ENDP), around 1.34% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 1.06 percent of its 13F equity portfolio to ENDP.

Seeing as Endo International plc (NASDAQ:ENDP) has witnessed declining sentiment from the smart money, we can see that there was a specific group of hedge funds that elected to cut their entire stakes heading into Q3. Interestingly, David Greenspan’s Slate Path Capital dumped the largest investment of all the hedgies watched by Insider Monkey, valued at close to $12.5 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $8.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Endo International plc (NASDAQ:ENDP). These stocks are Warrior Met Coal Inc. (NYSE:HCC), JinkoSolar Holding Co., Ltd. (NYSE:JKS), Benchmark Electronics, Inc. (NYSE:BHE), General American Investors Company, Inc. (NYSE:GAM), SiTime Corporation (NASDAQ:SITM), BellRing Brands, Inc. (NYSE:BRBR), and Stoke Therapeutics, Inc. (NASDAQ:STOK). All of these stocks’ market caps are closest to ENDP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCC 21 180203 -3
JKS 8 20107 1
BHE 14 26639 0
GAM 3 23963 -1
SITM 12 53895 9
BRBR 16 130361 1
STOK 11 158011 1
Average 12.1 84740 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.1 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $166 million in ENDP’s case. Warrior Met Coal Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand General American Investors Company, Inc. (NYSE:GAM) is the least popular one with only 3 bullish hedge fund positions. Endo International plc (NASDAQ:ENDP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ENDP is 64.3. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ENDP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ENDP were disappointed as the stock returned -3.8% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.