We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like The Medicines Company (NASDAQ:MDCO).
Is The Medicines Company (NASDAQ:MDCO) ready to rally soon? The best stock pickers are turning bullish. The number of long hedge fund bets inched up by 8 in recent months. Our calculations also showed that MDCO isn't among the 30 most popular stocks among hedge funds (view the video below). MDCO was in 33 hedge funds' portfolios at the end of the second quarter of 2019. There were 25 hedge funds in our database with MDCO holdings at the end of the previous quarter. 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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 check out the fresh hedge fund action encompassing The Medicines Company (NASDAQ:MDCO).
What does smart money think about The Medicines Company (NASDAQ:MDCO)?
At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in MDCO a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Sarissa Capital Management, managed by Alex Denner, holds the biggest position in The Medicines Company (NASDAQ:MDCO). Sarissa Capital Management has a $153.2 million position in the stock, comprising 19.1% of its 13F portfolio. On Sarissa Capital Management's heels is Maverick Capital, led by Lee Ainslie, holding a $141 million position; 2% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions comprise David Greenspan's Slate Path Capital, David Cohen and Harold Levy's Iridian Asset Management and Roberto Mignone's Bridger Management.
With a general bullishness amongst the heavyweights, specific money managers have jumped into The Medicines Company (NASDAQ:MDCO) headfirst. Iridian Asset Management, managed by David Cohen and Harold Levy, created the largest position in The Medicines Company (NASDAQ:MDCO). Iridian Asset Management had $126 million invested in the company at the end of the quarter. Albert Cha and Frank Kung's Vivo Capital also initiated a $24.4 million position during the quarter. The following funds were also among the new MDCO investors: Renaissance Technologies, Samuel Isaly's OrbiMed Advisors, and Dmitry Balyasny's Balyasny Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Medicines Company (NASDAQ:MDCO) but similarly valued. These stocks are NuStar Energy L.P. (NYSE:NS), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), Kennedy-Wilson Holdings Inc (NYSE:KW), and Kennametal Inc. (NYSE:KMT). All of these stocks' market caps are closest to MDCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NS,2,11421,1 GOL,8,199619,-8 KW,13,468473,-1 KMT,20,321757,0 Average,10.75,250318,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $921 million in MDCO's case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 2 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on MDCO as the stock returned 37.1% during Q3 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.