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Is Agios Pharmaceuticals Inc (AGIO) Going to Burn These Hedge Funds?

Nina Todic

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Agios Pharmaceuticals Inc (NASDAQ:AGIO).

Agios Pharmaceuticals Inc (NASDAQ:AGIO) shareholders have witnessed an increase in activity from the world's largest hedge funds of late. AGIO was in 22 hedge funds' portfolios at the end of March. There were 17 hedge funds in our database with AGIO positions at the end of the previous quarter. Our calculations also showed that agio isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Ken Griffin CITADEL INVESTMENT GROUP

Let's go over the new hedge fund action surrounding Agios Pharmaceuticals Inc (NASDAQ:AGIO).

Hedge fund activity in Agios Pharmaceuticals Inc (NASDAQ:AGIO)

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the fourth quarter of 2018. By comparison, 24 hedge funds held shares or bullish call options in AGIO a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with AGIO Positions

The largest stake in Agios Pharmaceuticals Inc (NASDAQ:AGIO) was held by Woodford Investment Management, which reported holding $149.3 million worth of stock at the end of March. It was followed by Alkeon Capital Management with a $46.3 million position. Other investors bullish on the company included Citadel Investment Group, Casdin Capital, and Polar Capital.

As aggregate interest increased, some big names were leading the bulls' herd. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, initiated the most outsized position in Agios Pharmaceuticals Inc (NASDAQ:AGIO). Rock Springs Capital Management had $7.9 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom's Sectoral Asset Management also made a $4 million investment in the stock during the quarter. The following funds were also among the new AGIO investors: Sander Gerber's Hudson Bay Capital Management, Minhua Zhang's Weld Capital Management, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital.

Let's now take a look at hedge fund activity in other stocks similar to Agios Pharmaceuticals Inc (NASDAQ:AGIO). We will take a look at Teladoc Health, Inc. (NYSE:TDOC), CoreSite Realty Corp (NYSE:COR), First Financial Bankshares Inc (NASDAQ:FFIN), and Verint Systems Inc. (NASDAQ:VRNT). This group of stocks' market values match AGIO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDOC,17,166690,-2 COR,13,226074,-2 FFIN,13,32742,7 VRNT,22,370064,4 Average,16.25,198893,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $316 million in AGIO's case. Verint Systems Inc. (NASDAQ:VRNT) is the most popular stock in this table. On the other hand CoreSite Realty Corp (NYSE:COR) is the least popular one with only 13 bullish hedge fund positions. Agios Pharmaceuticals Inc (NASDAQ:AGIO) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately AGIO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AGIO were disappointed as the stock returned -29.7% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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