The Smart Money Is Hoarding Shares of These 10 Healthcare Stocks: Part 1

Given elite hedge funds have filed their latest 13F’s, we have an opportunity to analyze what hedge funds like and what they don’t like. Since healthcare is a future growth sector as technology advances, let’s examine the healthcare stocks in which the funds we track have amassed substantial positions heading into the fourth quarter. In this article, we take a closer look at SAGE Therapeutics Inc (NASDAQ:SAGE), Brookdale Senior Living, Inc. (NYSE:BKD), Seattle Genetics, Inc. (NASDAQ:SGEN), Wright Medical Group Inc (NASDAQ:WMGI), and Amicus Therapeutics, Inc. (NASDAQ:FOLD). Even though these stocks don’t rank as the most popular picks among the funds we track, smart money investors accumulated stakes that in aggregate were equal from 38% to 61% of these companies’ outstanding shares.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

#5 Amicus Therapeutics, Inc. (NASDAQ:FOLD)

Number of Hedge Fund Holders (as of September 30): 26
Total Value of Hedge Fund Holdings (as of September 30): $630.7 million
Hedge Fund Holdings as Percent of Float (as of September 30): 38.00%

On October 2, Amicus Therapeutics, Inc. (NASDAQ:FOLD) fell by over 50% after the company said it will not file the NDA for migalastat as previously planned. Amicus delayed its filing because the FDA wants Amicus to better integrate its Phase 2 and Phase 3 trial data. Management will provide more information on how they plan to get migalastat approved in the U.S. in the first quarter of 2016. The good news is that migalastat’s European application is still on track, however. Shares of the company are up 20% year-to-date. Among the top shareholders of the company is Joseph Edelman’s Perceptive Advisors with a stake containing 14.44 million shares.

#4 Wright Medical Group Inc (NASDAQ:WMGI)

Number of Hedge Fund Holders (as of September 30): 23
Total Value of Hedge Fund Holdings (as of September 30): $460.11 million
Hedge Fund Holdings as Percent of Float (as of September 30): 42.60%

Wright Medical Group Inc (NASDAQ:WMGI) reported mixed results for the third quarter, missing EPS estimates by $0.09 with a loss of $0.51 per share, but beating revenue expectations by $1.85 million with sales of $80.1 million. Earnings were softer-than-expected due in part to the substantial dis-synergies associated with Wright Medical Group’s completed merger with Dutch extremities company Tornier. Management anticipates the merger to yield $25-30 million of dis-synergies over the next four to six quarters before generating annual synergies of $40-$45 million by 2018. During the third quarter, Samuel Isaly’s OrbiMed Advisors more than doubled its position to 8.14 million shares.

#3 Seattle Genetics, Inc. (NASDAQ:SGEN)

Number of Hedge Fund Holders (as of September 30): 21
Total Value of Hedge Fund Holdings (as of September 30): $2.09 billion
Hedge Fund Holdings as Percent of Float (as of September 30): 43.30%

Although the analysts at Goldman think Adcetris’ label expansion is already priced into the stock and Seattle Genetics, Inc. (NASDAQ:SGEN)’s pipeline potential is uncertain, Goldman is going against the grain. Seven analysts have ‘Buy’ ratings, five have ‘Hold’ ratings, and only two analysts have ‘Sell’ ratings on the biotech company. Moreover, the hedge fund crowd is becoming more bullish, as the number of hedge funds long the stock increased by 5 quarter-over-quarter to 21. The total amount of elite fund holdings in Seattle Genetics also increased to $2.09 billion from $1.62 billion a quarter ago. Healthcare-focused investors Julian and Felix Bakers’ are betting big on Seattle Genetics. Their fund, Baker Bros. Advisors, disclosed ownership of 36.03 million shares of the company in its latest 13F filing.

#2 Brookdale Senior Living, Inc. (NYSE:BKD)

Number of Hedge Fund Holders (as of September 30): 66
Total Value of Hedge Fund Holdings (as of September 30): $2.17 billion
Hedge Fund Holdings as Percent of Float (as of September 30): 51.20%

For its third quarter, Brookdale Senior Living, Inc. (NYSE:BKD) reported a FFO/share of $0.59, exceeding estimates by $0.01 per share. Revenue grew 14.8% year-over-year to $1.24 billion, in-line with expectations. Given the company’s forward PE of 7.16, many hedge funds are going the opposite way of the market and are accumulating shares. Larry Robbins’ Glenview Capital owned 17.64 million shares of Brookdale Senior Living at the end of September.

#1 SAGE Therapeutics Inc (NASDAQ:SAGE)

Number of Hedge Fund Holders (as of September 30): 17
Total Value of Hedge Fund Holdings (as of September 30): $744.21 million
Hedge Fund Holdings as Percent of Float (as of September 30): 61.00%

The sell side is bullish on SAGE Therapeutics Inc (NASDAQ:SAGE) as all seven analysts covering the stock have a ‘Buy’ rating, with a consensus price target of $84.43 per share. The analyst’s price target give SAGE 58% upside from current levels. Hedge funds are bullish too, as 17 funds owned 61% of the float at the end of the third quarter. The total amount that the elite funds own in SAGE has also increased, from $106.4 million at the end of June to $744.21 million at the end of September. Shares are up 45% year-to-date. Jeremy Green’s Redmile Group reported holding 1.14 million shares of SAGE as of the end of the third quarter.

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