Did Hedge Funds Make The Right Call On Perrigo Company (PRGO) ?
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Perrigo Company (NASDAQ:PRGO) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Perrigo Company (NASDAQ:PRGO) the right pick for your portfolio? The smart money was becoming more confident. The number of long hedge fund bets increased by 1 recently. Our calculations also showed that PRGO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). PRGO was in 28 hedge funds' portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with PRGO holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most investors, hedge funds are seen as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, We choose to focus on the bigwigs of this group, around 850 funds. Most estimates calculate that this group of people administer the lion's share of the hedge fund industry's total asset base, and by tracking their top investments, Insider Monkey has unsheathed a few investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_758429" align="aligncenter" width="400"]
Ric Dillon of Diamond Hill Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the latest hedge fund action encompassing Perrigo Company (NASDAQ:PRGO).
What have hedge funds been doing with Perrigo Company (NASDAQ:PRGO)?
At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PRGO over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Perrigo Company (NASDAQ:PRGO) was held by Citadel Investment Group, which reported holding $119 million worth of stock at the end of September. It was followed by Camber Capital Management with a $96.2 million position. Other investors bullish on the company included Diamond Hill Capital, Millennium Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Perrigo Company (NASDAQ:PRGO), around 7.28% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, earmarking 5.74 percent of its 13F equity portfolio to PRGO.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Alyeska Investment Group, managed by Anand Parekh, initiated the biggest position in Perrigo Company (NASDAQ:PRGO). Alyeska Investment Group had $28.5 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $19.3 million position during the quarter. The other funds with new positions in the stock are Justin John Ferayorni's Tamarack Capital Management, Martin D. Sass's MD Sass, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now review hedge fund activity in other stocks similar to Perrigo Company (NASDAQ:PRGO). We will take a look at ABIOMED, Inc. (NASDAQ:ABMD), Zynga Inc (NASDAQ:ZNGA), F5 Networks, Inc. (NASDAQ:FFIV), and Wynn Resorts, Limited (NASDAQ:WYNN). This group of stocks' market values resemble PRGO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABMD,27,522802,-8 ZNGA,59,1015313,11 FFIV,32,940064,3 WYNN,40,403164,-4 Average,39.5,720336,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $720 million. That figure was $464 million in PRGO's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand ABIOMED, Inc. (NASDAQ:ABMD) is the least popular one with only 27 bullish hedge fund positions. Perrigo Company (NASDAQ:PRGO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately PRGO wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PRGO investors were disappointed as the stock returned 15.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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