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United Therapeutics (UTHR): Hedge Funds Were Patiently Waiting For Strong Gains

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like United Therapeutics Corporation (NASDAQ:UTHR).

Hedge fund interest in United Therapeutics Corporation (NASDAQ:UTHR) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Univar Solutions Inc (NYSE:UNVR), Medallia, Inc. (NYSE:MDLA), and Bank of Hawaii Corporation (NYSE:BOH) to gather more data points. Our calculations also showed that UTHR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

William Leland Edwards of Palo Alto Investors

William Leland Edwards of Palo Alto Investors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the latest hedge fund action regarding United Therapeutics Corporation (NASDAQ:UTHR).

What does smart money think about United Therapeutics Corporation (NASDAQ:UTHR)?

Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UTHR over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

UTHR_dec2019

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in United Therapeutics Corporation (NASDAQ:UTHR), worth close to $256.2 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which holds a $133.6 million position; 0.2% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of Ken Griffin’s Citadel Investment Group, William Leland Edwards’s Palo Alto Investors and Mitchell Blutt’s Consonance Capital Management. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to United Therapeutics Corporation (NASDAQ:UTHR), around 7.64% of its portfolio. Palo Alto Investors is also relatively very bullish on the stock, designating 7.57 percent of its 13F equity portfolio to UTHR.

Judging by the fact that United Therapeutics Corporation (NASDAQ:UTHR) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds that decided to sell off their full holdings in the third quarter. At the top of the heap, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $3.3 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also sold off its stock, about $2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out 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 Univar Solutions Inc (NYSE:UNVR), Medallia, Inc. (NYSE:MDLA), Bank of Hawaii Corporation (NYSE:BOH), and MorphoSys AG (NASDAQ:MOR). This group of stocks’ market values are similar to UTHR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNVR 37 1331993 6
MDLA 23 250641 23
BOH 13 104848 1
MOR 4 6546 -2
Average 19.25 423507 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $424 million. That figure was $1132 million in UTHR’s case. Univar Solutions Inc (NYSE:UNVR) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 4 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on UTHR as the stock returned 15.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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