Does Bausch Health Companies (NYSE:BHC) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Bausch Health Companies (NYSE:BHC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 31 hedge funds' portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Molina Healthcare, Inc. (NYSE:MOH), Santander Consumer USA Holdings Inc (NYSE:SC), and Vereit Inc (NYSE:VER) to gather more data points. Our calculations also showed that BHC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the key hedge fund action surrounding Bausch Health Companies (NYSE:BHC).
What does smart money think about Bausch Health Companies (NYSE:BHC)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BHC over the last 16 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Paulson's Paulson & Co has the biggest position in Bausch Health Companies (NYSE:BHC), worth close to $525.6 million, corresponding to 8.9% of its total 13F portfolio. On Paulson & Co's heels is ValueAct Capital, managed by Jeffrey Ubben, which holds a $452.2 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include Larry Robbins's Glenview Capital, Steven Tananbaum's GoldenTree Asset Management and Bill Miller's Miller Value Partners.
Seeing as Bausch Health Companies (NYSE:BHC) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few fund managers that decided to sell off their full holdings heading into Q3. It's worth mentioning that Cliff Asness's AQR Capital Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, valued at close to $67.6 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $18.4 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Bausch Health Companies (NYSE:BHC) but similarly valued. These stocks are Molina Healthcare, Inc. (NYSE:MOH), Santander Consumer USA Holdings Inc (NYSE:SC), Vereit Inc (NYSE:VER), and Tapestry, Inc. (NYSE:TPR). All of these stocks' market caps resemble BHC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOH,32,1201084,2 SC,26,837468,4 VER,23,385560,2 TPR,32,533042,3 Average,28.25,739289,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $739 million. That figure was $1991 million in BHC's case. Molina Healthcare, Inc. (NYSE:MOH) is the most popular stock in this table. On the other hand Vereit Inc (NYSE:VER) is the least popular one with only 23 bullish hedge fund positions. Bausch Health Companies (NYSE:BHC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BHC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BHC were disappointed as the stock returned -13.4% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.