Hedge Funds Hit The Bullseye With This Stock Pick
After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards The Medicines Company (NASDAQ:MDCO).
The Medicines Company (NASDAQ:MDCO) investors should be very happy right now. MDCO was in 32 hedge funds' portfolios at the end of the third quarter of 2019. There were 33 hedge funds in our database with MDCO positions at the end of the previous quarter. Even though our calculations showed that MDCO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings), MDCO is still very popular in comparison to its peers like Helen of Troy Limited (NASDAQ:HELE), Repligen Corporation (NASDAQ:RGEN), FirstCash, Inc. (NASDAQ:FCFS), and Mattel, Inc. (NASDAQ:MAT).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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_339332" align="aligncenter" width="2480"]
Alex Denner of Sarissa Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the latest hedge fund action encompassing The Medicines Company (NASDAQ:MDCO).
What have hedge funds been doing with The Medicines Company (NASDAQ:MDCO)?
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MDCO over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sarissa Capital Management was the largest shareholder of The Medicines Company (NASDAQ:MDCO), with a stake worth $210.1 million reported as of the end of September. Trailing Sarissa Capital Management was Maverick Capital, which amassed a stake valued at $194.2 million. Slate Path Capital, Iridian Asset Management, and Bridger Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to The Medicines Company (NASDAQ:MDCO), around 26.33% of its portfolio. Antipodean Advisors is also relatively very bullish on the stock, setting aside 13.39 percent of its 13F equity portfolio to MDCO.
Judging by the fact that The Medicines Company (NASDAQ:MDCO) has faced bearish sentiment from the smart money at the margin, we can see that there were a few fund managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Stephen DuBois's Camber Capital Management cut the biggest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $62 million in stock, and Albert Cha and Frank Kung's Vivo Capital was right behind this move, as the fund sold off about $24.4 million worth. They probably regret these moves now.
Let's check out hedge fund activity in other stocks similar to The Medicines Company (NASDAQ:MDCO). These stocks are Helen of Troy Limited (NASDAQ:HELE), Repligen Corporation (NASDAQ:RGEN), FirstCash, Inc. (NASDAQ:FCFS), and Mattel, Inc. (NASDAQ:MAT). This group of stocks' market values are closest to MDCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HELE,14,206819,-6 RGEN,23,223018,1 FCFS,16,179303,1 MAT,22,685143,6 Average,18.75,323571,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $1150 million in MDCO's case. Repligen Corporation (NASDAQ:RGEN) is the most popular stock in this table. On the other hand Helen of Troy Limited (NASDAQ:HELE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks The Medicines Company (NASDAQ:MDCO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on MDCO as the stock returned 68.4% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
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