Were Hedge Funds Right About Merck & Co., Inc. (MRK)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active 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’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Merck & Co., Inc. (NYSE:MRK) in this article.

Merck & Co., Inc. (NYSE:MRK) investors should be aware of a decrease in hedge fund interest in recent months. Merck & Co., Inc. (NYSE:MRK) was in 79 hedge funds’ portfolios at the end of March. The all time high for this statistic is 84. There were 82 hedge funds in our database with MRK positions at the end of the fourth quarter. Our calculations also showed that MRK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In today’s marketplace there are dozens of signals market participants have at their disposal to evaluate their holdings. Two of the most under-the-radar signals are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the top money managers can outclass the broader indices by a healthy amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the latest hedge fund action encompassing Merck & Co., Inc. (NYSE:MRK).

Do Hedge Funds Think MRK Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 79 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 78 hedge funds with a bullish position in MRK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in Merck & Co., Inc. (NYSE:MRK). Berkshire Hathaway has a $1.3786 billion position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Fisher Asset Management, managed by Ken Fisher, which holds a $760 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of D. E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Merck & Co., Inc. (NYSE:MRK), around 8.43% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, designating 6.35 percent of its 13F equity portfolio to MRK.

Due to the fact that Merck & Co., Inc. (NYSE:MRK) has faced bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of money managers that slashed their positions entirely by the end of the first quarter. Intriguingly, Roberto Mignone’s Bridger Management said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, comprising about $48.2 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $11.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Merck & Co., Inc. (NYSE:MRK) but similarly valued. We will take a look at Novartis AG (NYSE:NVS), AbbVie Inc (NYSE:ABBV), Broadcom Inc (NASDAQ:AVGO), Accenture Plc (NYSE:ACN), Thermo Fisher Scientific Inc. (NYSE:TMO), Eli Lilly and Company (NYSE:LLY), and Texas Instruments Incorporated (NASDAQ:TXN). This group of stocks’ market values are similar to MRK’s market value.

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As you can see these stocks had an average of 52.6 hedge funds with bullish positions and the average amount invested in these stocks was $3514 million. That figure was $6494 million in MRK’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 19 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRK is 80.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately MRK wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MRK were disappointed as the stock returned 3.4% since the end of March (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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