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Were Hedge Funds Right About Incyte Corporation (INCY)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Incyte Corporation (NASDAQ:INCY) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Incyte Corporation (NASDAQ:INCY) investors should be aware of an increase in hedge fund sentiment lately. Our calculations also showed that INCY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action regarding Incyte Corporation (NASDAQ:INCY).

Hedge fund activity in Incyte Corporation (NASDAQ:INCY)

At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in INCY a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

Is INCY A Good Stock To Buy?

More specifically, Baker Bros. Advisors was the largest shareholder of Incyte Corporation (NASDAQ:INCY), with a stake worth $2792.2 million reported as of the end of September. Trailing Baker Bros. Advisors was Renaissance Technologies, which amassed a stake valued at $314.4 million. Matrix Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Baker Bros. Advisors allocated the biggest weight to Incyte Corporation (NASDAQ:INCY), around 14.84% of its 13F portfolio. Matrix Capital Management is also relatively very bullish on the stock, earmarking 3.6 percent of its 13F equity portfolio to INCY.

Now, key money managers have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, established the most valuable position in Incyte Corporation (NASDAQ:INCY). Woodline Partners had $18.9 million invested in the company at the end of the quarter. Philip Hempleman’s Ardsley Partners also initiated a $6.5 million position during the quarter. The other funds with brand new INCY positions are Samuel Isaly’s OrbiMed Advisors, Steve Cohen’s Point72 Asset Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to Incyte Corporation (NASDAQ:INCY). We will take a look at Sea Limited (NYSE:SE), Alexandria Real Estate Equities Inc (NYSE:ARE), DISH Network Corp. (NASDAQ:DISH), and Garmin Ltd. (NASDAQ:GRMN). This group of stocks’ market caps resemble INCY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SE 76 3911536 7
ARE 21 297129 -4
DISH 41 1617687 3
GRMN 26 509870 -4
Average 41 1584056 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1584 million. That figure was $3966 million in INCY’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 21 bullish hedge fund positions. Incyte Corporation (NASDAQ:INCY) 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on INCY as the stock returned 11.4% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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