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Should You Avoid United Therapeutics Corporation (UTHR)?

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 first 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 4.5 years and analyze what the smart money thinks of United Therapeutics Corporation (NASDAQ:UTHR) based on that data.

United Therapeutics Corporation (NASDAQ:UTHR) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that UTHR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Leland Edwards of Palo Alto Investors

William Leland Edwards of Palo Alto Investors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the latest hedge fund action regarding United Therapeutics Corporation (NASDAQ:UTHR).

What have hedge funds been doing with United Therapeutics Corporation (NASDAQ:UTHR)?

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in UTHR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in United Therapeutics Corporation (NASDAQ:UTHR), which was worth $340.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $133.2 million worth of shares. Consonance Capital Management, Adage Capital Management, and Palo Alto Investors 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 Consonance Capital Management allocated the biggest weight to United Therapeutics Corporation (NASDAQ:UTHR), around 9.53% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, earmarking 6.96 percent of its 13F equity portfolio to UTHR.

Since United Therapeutics Corporation (NASDAQ:UTHR) has faced declining sentiment from hedge fund managers, it’s safe to say that there exists a select few hedge funds that elected to cut their positions entirely in the first quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $48.8 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund sold off about $11.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Therapeutics Corporation (NASDAQ:UTHR) but similarly valued. We will take a look at Diamondback Energy Inc (NASDAQ:FANG), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), China Biologic Products Holdings, Inc. (NASDAQ:CBPO), and Gold Fields Limited (NYSE:GFI). All of these stocks’ market caps are closest to UTHR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FANG 31 240887 -13
LECO 19 157727 3
CBPO 16 612733 -3
GFI 22 244665 4
Average 22 314003 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $1291 million in UTHR’s case. Diamondback Energy Inc (NASDAQ:FANG) is the most popular stock in this table. On the other hand China Biologic Products Holdings, Inc.(NASDAQ:CBPO) is the least popular one with only 16 bullish hedge fund positions. United Therapeutics Corporation (NASDAQ:UTHR) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on UTHR as the stock returned 24.4% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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