Were Hedge Funds Right About Piling Into Alexion (ALXN)?

Is Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) 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.

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was in 77 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 58. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ALXN has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 58 hedge funds in our database with ALXN positions at the end of the third quarter. Our calculations also showed that ALXN isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 website. With all of this in mind we’re going to analyze the new hedge fund action regarding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).

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

At the end of December, a total of 77 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the third quarter of 2020. By comparison, 48 hedge funds held shares or bullish call options in ALXN 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.

Of the funds tracked by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the biggest position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Baker Bros. Advisors has a $1.3688 billion position in the stock, comprising 5.2% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $642.7 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Matthew Halbower’s Pentwater Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Sand Grove Capital Partners allocated the biggest weight to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), around 13.14% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, setting aside 12.72 percent of its 13F equity portfolio to ALXN.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Pentwater Capital Management, managed by Matthew Halbower, established the most valuable position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Pentwater Capital Management had $462.6 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also initiated a $184.5 million position during the quarter. The following funds were also among the new ALXN investors: Robert Emil Zoellner’s Alpine Associates, Clint Carlson’s Carlson Capital, and John Orrico’s Water Island Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). We will take a look at PPG Industries, Inc. (NYSE:PPG), RingCentral Inc (NYSE:RNG), Verisk Analytics, Inc. (NASDAQ:VRSK), Johnson Controls International plc (NYSE:JCI), TransDigm Group Incorporated (NYSE:TDG), Cummins Inc. (NYSE:CMI), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks’ market valuations are closest to ALXN’s market valuation.

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As you can see these stocks had an average of 43.4 hedge funds with bullish positions and the average amount invested in these stocks was $2223 million. That figure was $6026 million in ALXN’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Verisk Analytics, Inc. (NASDAQ:VRSK) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is more popular among hedge funds. Our overall hedge fund sentiment score for ALXN is 90. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Unfortunately ALXN wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ALXN were disappointed as the stock returned 5.9% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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