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Should You Buy Grifols SA (GRFS)?

Asma UL Husna

"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Grifols SA (NASDAQ:GRFS) was in 14 hedge funds' portfolios at the end of December. GRFS has experienced an increase in hedge fund interest recently. There were 12 hedge funds in our database with GRFS positions at the end of the previous quarter. Our calculations also showed that GRFS isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Griffin CITADEL INVESTMENT GROUP

Let's review the new hedge fund action surrounding Grifols SA (NASDAQ:GRFS).

How are hedge funds trading Grifols SA (NASDAQ:GRFS)?

Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards GRFS over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GRFS_mar2019

More specifically, Arrowstreet Capital was the largest shareholder of Grifols SA (NASDAQ:GRFS), with a stake worth $53.9 million reported as of the end of September. Trailing Arrowstreet Capital was Farallon Capital, which amassed a stake valued at $43.7 million. Millennium Management, GLG Partners, and Polar Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Grifols SA (NASDAQ:GRFS). Citadel Investment Group had $2.5 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $0.3 million position during the quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Grifols SA (NASDAQ:GRFS) but similarly valued. We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), Liberty Global plc (NASDAQ:LBTYA), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and The Hartford Financial Services Group Inc (NYSE:HIG). This group of stocks' market valuations match GRFS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LULU,36,932595,-9 LBTYA,32,1236410,-7 IDXX,33,784402,-2 HIG,30,1244589,-7 Average,32.75,1049499,-6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1049 million. That figure was $186 million in GRFS's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand The Hartford Financial Services Group Inc (NYSE:HIG) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Grifols SA (NASDAQ:GRFS) is even less popular than HIG. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately GRFS wasn't in this group. Hedge funds that bet on GRFS were disappointed as the stock returned 10.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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