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Were Hedge Funds Right About Walgreens Boots Alliance Inc (WBA)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Walgreens Boots Alliance Inc (NASDAQ:WBA) and determine whether the smart money was really smart about this stock.

Is Walgreens Boots Alliance Inc (NASDAQ:WBA) a buy, sell, or hold? Hedge funds were taking a bullish view. The number of long hedge fund positions advanced by 7 lately. Our calculations also showed that WBA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). WBA was in 45 hedge funds’ portfolios at the end of the first quarter of 2020. There were 38 hedge funds in our database with WBA positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the recent hedge fund action regarding Walgreens Boots Alliance Inc (NASDAQ:WBA).

Hedge fund activity in Walgreens Boots Alliance Inc (NASDAQ:WBA)

Heading into the second quarter of 2020, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in WBA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Two Sigma Advisors was the largest shareholder of Walgreens Boots Alliance Inc (NASDAQ:WBA), with a stake worth $83.6 million reported as of the end of September. Trailing Two Sigma Advisors was Markel Gayner Asset Management, which amassed a stake valued at $81.5 million. AQR Capital Management, Adage Capital Management, and Millennium Management 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 Game Creek Capital allocated the biggest weight to Walgreens Boots Alliance Inc (NASDAQ:WBA), around 2.05% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, earmarking 1.92 percent of its 13F equity portfolio to WBA.

Now, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, established the most valuable position in Walgreens Boots Alliance Inc (NASDAQ:WBA). Alyeska Investment Group had $26.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $23.5 million investment in the stock during the quarter. The other funds with new positions in the stock are David Rosen’s Rubric Capital Management, Michael Rockefeller and KarláKroeker’s Woodline Partners, and Bhagwan Jay Rao’s Integral Health Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Walgreens Boots Alliance Inc (NASDAQ:WBA) but similarly valued. We will take a look at Equinor ASA (NYSE:EQNR), Illumina, Inc. (NASDAQ:ILMN), Moody’s Corporation (NYSE:MCO), and American Electric Power Company, Inc. (NYSE:AEP). All of these stocks’ market caps are closest to WBA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQNR 11 281375 -3
ILMN 34 1130705 -9
MCO 50 8552785 1
AEP 38 1070882 4
Average 33.25 2758937 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $2759 million. That figure was $461 million in WBA’s case. Moody’s Corporation (NYSE:MCO) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 11 bullish hedge fund positions. Walgreens Boots Alliance Inc (NASDAQ:WBA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately WBA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WBA were disappointed as the stock returned -6.3% during the same time period 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.