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How Did Bristol Myers Squibb Company (BMY) Compare Against Hedge Fund Darlings in 2019?

Debasis Saha

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Bristol Myers Squibb Company (NYSE:BMY) was in 56 hedge funds' portfolios at the end of September. BMY has experienced a decrease in hedge fund interest recently. There were 65 hedge funds in our database with BMY positions at the end of the previous quarter. Our calculations also showed that BMY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to go over the recent hedge fund action surrounding Bristol Myers Squibb Company (NYSE:BMY).

How have hedgies been trading Bristol Myers Squibb Company (NYSE:BMY)?

At the end of the third quarter, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. By comparison, 48 hedge funds held shares or bullish call options in BMY a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is BMY A Good Stock To Buy?

The largest stake in Bristol Myers Squibb Company (NYSE:BMY) was held by Renaissance Technologies, which reported holding $1661.1 million worth of stock at the end of September. It was followed by Baupost Group with a $507.1 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Bristol Myers Squibb Company (NYSE:BMY), around 9.34% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, designating 8.58 percent of its 13F equity portfolio to BMY.

Due to the fact that Bristol Myers Squibb Company (NYSE:BMY) has experienced a decline in interest from the smart money, we can see that there exists a select few hedgies who sold off their full holdings last quarter. Interestingly, Samuel Isaly's OrbiMed Advisors cut the biggest investment of all the hedgies monitored by Insider Monkey, worth an estimated $61 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $50.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 9 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Bristol Myers Squibb Company (NYSE:BMY) but similarly valued. These stocks are CVS Caremark Corporation (NYSE:CVS), Itau Unibanco Holding SA (NYSE:ITUB), Fidelity National Information Services Inc. (NYSE:FIS), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks' market valuations are closest to BMY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVS,47,924996,-8 ITUB,17,1060568,-1 FIS,90,7126015,31 BSBR,14,125130,3 Average,42,2309177,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $2309 million. That figure was $3842 million in BMY's case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 14 bullish hedge fund positions. Bristol Myers Squibb Company (NYSE:BMY) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BMY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BMY were disappointed as the stock returned 25.8% in 2019 (through December 23rd) 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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