We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
Is Alexion Pharmaceuticals (ALXN) stock a buy or sell? Hedge funds were getting more bullish. The number of bullish hedge fund positions advanced by 19 recently. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) was in 77 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 58. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ALXN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 124 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.
Matthew Halbower of Pentwater Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best hydrogen fuel cell 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 (or at the end of this article). Keeping this in mind let's take a glance at the new hedge fund action encompassing 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. The graph below displays the number of hedge funds with bullish position in ALXN over the last 22 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Julian Baker and Felix Baker's Baker Bros. Advisors has the largest position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), worth close to $1.3688 billion, corresponding to 5.2% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $642.7 million position; 0.7% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain 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, dishing out 12.72 percent of its 13F equity portfolio to ALXN.
Now, key money managers have been driving this bullishness. Pentwater Capital Management, managed by Matthew Halbower, established the most outsized 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 made a $184.5 million investment in the stock during the quarter. The other funds with new positions in the stock are 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 caps are closest to ALXN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPG,34,295422,-2 RNG,63,4401111,4 VRSK,32,1438418,-8 JCI,34,795050,10 TDG,64,6891017,0 CMI,45,828914,-4 PAYX,32,910613,4 Average,43.4,2222935,0.6 [/table]
View table here if you experience formatting issues.
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 7% in 2021 through March 12th and still beat the market by 1.6 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 -3% since the end of the fourth quarter (through 3/12) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
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