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Should You Avoid Shire PLC (ADR) (SHPG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Ackman’s recent Valeant losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Shire PLC (ADR) (NASDAQ:SHPG).

Shire PLC (ADR) (NASDAQ:SHPG) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. 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 Adobe Systems Incorporated (NASDAQ:ADBE), FedEx Corporation (NYSE:FDX), and The Southern Company (NYSE:SO) to gather more data points.

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Today, there are plenty of metrics stock market investors put to use to appraise stocks. A duo of the most under-the-radar metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best fund managers can outperform the S&P 500 by a superb margin (see the details here).

With all of this in mind, let’s check out the recent action encompassing Shire PLC (ADR) (NASDAQ:SHPG).

What have hedge funds been doing with Shire PLC (ADR) (NASDAQ:SHPG)?

At the end of September, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 2% from the previous quarter. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Paulson’s Paulson & Co has the biggest position in Shire PLC (ADR) (NASDAQ:SHPG), worth close to $1.40 billion, corresponding to 7.2% of its total 13F portfolio. Coming in second is OrbiMed Advisors, led by Samuel Isaly, holding a $136.4 million position; 1.4% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, William B. Gray’s Orbis Investment Management, and D E Shaw.

Judging by the fact that Shire PLC (ADR) (NASDAQ:SHPG) has witnessed a bearish sentiment from the smart money, logic holds that there were a few fund managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Doug Silverman and Alexander Klabin’s Senator Investment Group dropped the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $66.4 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $27.2 million worth of shares. These transactions are important to note, as total hedge fund interest dropped by 1 fund by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Shire PLC (ADR) (NASDAQ:SHPG) but similarly valued. These stocks are Adobe Systems Incorporated (NASDAQ:ADBE), FedEx Corporation (NYSE:FDX), The Southern Company (NYSE:SO), and Carnival Corporation (NYSE:CCL). This group of stocks’ market valuations resembles Shire PLC (ADR) (NASDAQ:SHPG)’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADBE 42 4069926 3
FDX 53 4136169 1
SO 17 360541 -2
CCL 53 2125468 4

As you can see, these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $2.67 billion. That figure was $2.50 billion in Shire PLC (ADR) (NASDAQ:SHPG)’s case. FedEx Corporation (NYSE:FDX) is the most popular stock in this table. On the other hand, The Southern Company (NYSE:SO) is the least popular one with only 17 bullish hedge fund positions. Shire PLC (ADR) (NASDAQ:SHPG) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, FedEx Corporation (NYSE:FDX) might be a better candidate to consider a long position.

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