Should You Buy Eli Lilly & Co. (LLY)?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

In this article, we are going to take a closer look at Eli Lilly & Co. (NYSE:LLY), which has witnessed an increase in support from the world’s most elite money managers in recent months. However, 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 United Technologies Corporation (NYSE:UTX), Starbucks Corporation (NASDAQ:SBUX), and The Boeing Company (NYSE:BA) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s check out the new action encompassing Eli Lilly & Co. (NYSE:LLY).

How are hedge funds trading Eli Lilly & Co. (NYSE:LLY)?

During the third quarter, the number of funds tracked by Insider Monkey that held long positions in Eli Lilly advanced by 12% to 55. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Viking Global, managed by Andreas Halvorsen, holds the biggest position in Eli Lilly & Co. (NYSE:LLY). Viking Global has a $489 million position in the stock, comprising 2.1% of its 13F portfolio. Sitting at the No. 2 spot is David E. Shaw’s D E Shaw holding a $239.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Hal Mintz’s Sabby Capital, Dmitry Balyasny’s Balyasny Asset Management, and Phill Gross and Robert Atchinson’s Adage Capital Management.

As aggregate interest increased, some big names have jumped into Eli Lilly & Co. (NYSE:LLY) headfirst. Passport Capital, managed by John Burbank, created the most outsized call position in Eli Lilly & Co. (NYSE:LLY). Passport Capital had $120.4 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey’s Healthcor Management LP also made a $66.2 million investment in the stock during the quarter. The other funds with new positions in the stock are James Dondero’s Highland Capital Management, Christopher James’s Partner Fund Management, and Anand Parekh’s Alyeska Investment Group.

Let’s now review hedge fund activity in other stocks similar to Eli Lilly & Co. (NYSE:LLY). We will take a look at United Technologies Corporation (NYSE:UTX), Starbucks Corporation (NASDAQ:SBUX), The Boeing Company (NYSE:BA), and Toronto-Dominion Bank (USA) (NYSE:TD). This group of stocks’ market values are similar to LLY’s market value.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1.59 billion at the end of September. That figure was $2.89 billion in LLY’s case. United Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (USA) (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Eli Lilly & Co. (NYSE:LLY) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.