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Should You Avoid Vertex Pharmaceuticals Incorporated (VRTX)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ recent losses in Facebook. Let’s take a closer look at what the funds we track think about Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in this article.

Is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) a buy, sell, or hold? Hedge funds are taking a pessimistic view. The number of long hedge fund positions were trimmed by 4 lately. Our calculations also showed that VRTX isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to the 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

RENAISSANCE TECHNOLOGIES

Let’s go over the new hedge fund action encompassing Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

What have hedge funds been doing with Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?

At Q3’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VRTX over the last 13 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.

VRTX_dec2018

The largest stake in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was held by Renaissance Technologies, which reported holding $788.1 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $308.5 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Citadel Investment Group.

Since Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few funds that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Zach Schreiber’s Point State Capital cut the largest investment of all the hedgies monitored by Insider Monkey, valued at close to $132.4 million in stock, and Bain Capital’s Brookside Capital was right behind this move, as the fund said goodbye to about $41 million worth. These transactions are intriguing, to say the least, as total hedge fund interest was cut by 4 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). We will take a look at S&P Global Inc. (NYSE:SPGI), Valero Energy Corporation (NYSE:VLO), Deere & Company (NYSE:DE), and HCA Healthcare Inc (NYSE:HCA). This group of stocks’ market valuations is closest to VRTX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPGI 54 3925636 5
VLO 34 1266258 2
DE 37 2729209 -14
HCA 46 3198514 1
Average 42.75 2780 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $2780 million. That figure was $2595 million in VRTX’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand, Valero Energy Corporation (NYSE:VLO) is the least popular one with only 34 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, SPGI might be a better candidate to consider a long position.

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

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