Were Hedge Funds Right About Souring On Gilead Sciences, Inc. (GILD)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Gilead Sciences, Inc. (NASDAQ:GILD) changed recently.

Is Gilead Sciences, Inc. (NASDAQ:GILD) undervalued? The best stock pickers were getting less optimistic. The number of long hedge fund bets went down by 8 recently. Gilead Sciences, Inc. (NASDAQ:GILD) was in 68 hedge funds’ portfolios at the end of June. The all time high for this statistics is 93. Our calculations also showed that GILD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 76 hedge funds in our database with GILD holdings at the end of March.

Video: 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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the latest hedge fund action encompassing Gilead Sciences, Inc. (NASDAQ:GILD).

What does smart money think about Gilead Sciences, Inc. (NASDAQ:GILD)?

At Q2’s end, a total of 68 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 57 hedge funds with a bullish position in GILD a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Gilead Sciences, Inc. (NASDAQ:GILD), which was worth $684.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $352.7 million worth of shares. Citadel Investment Group, Diamond Hill Capital, and Arrowstreet Capital 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 Healthcare Value Capital allocated the biggest weight to Gilead Sciences, Inc. (NASDAQ:GILD), around 9.82% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 4.13 percent of its 13F equity portfolio to GILD.

Due to the fact that Gilead Sciences, Inc. (NASDAQ:GILD) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their entire stakes in the second quarter. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth close to $83.2 million in stock, and Fang Zheng’s Keywise Capital Management was right behind this move, as the fund dumped about $61.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 8 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Gilead Sciences, Inc. (NASDAQ:GILD). These stocks are Royal Bank of Canada (NYSE:RY), United Parcel Service, Inc. (NYSE:UPS), Anheuser-Busch InBev SA/NV (NYSE:BUD), HSBC Holdings plc (NYSE:HSBC), JD.Com Inc (NASDAQ:JD), Raytheon Technologies Corp (NYSE:RTX), and 3M Company (NYSE:MMM). All of these stocks’ market caps are similar to GILD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RY 16 237643 0
UPS 37 781926 -11
BUD 17 860874 0
HSBC 10 384518 -4
JD 87 11211241 -3
RTX 59 2951712 -3
MMM 42 1038241 -2
Average 38.3 2495165 -3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $2495 million. That figure was $2286 million in GILD’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 10 bullish hedge fund positions. Gilead Sciences, Inc. (NASDAQ:GILD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GILD is 56.6. 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 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately GILD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GILD were disappointed as the stock returned -18.6% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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