Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) a worthy investment right now? Money managers are in a bullish mood. The number of long hedge fund positions rose by 9 recently. Our calculations also showed that ALXN isn't among the 30 most popular stocks among hedge funds (see the video below). ALXN was in 44 hedge funds' portfolios at the end of June. There were 35 hedge funds in our database with ALXN 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We're going to go over the latest hedge fund action surrounding Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
How are hedge funds trading Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)?
At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the previous quarter. By comparison, 43 hedge funds held shares or bullish call options in ALXN a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Baker Bros. Advisors held the most valuable stake in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), which was worth $1081.6 million at the end of the second quarter. On the second spot was OrbiMed Advisors which amassed $252.3 million worth of shares. Moreover, Iridian Asset Management, Renaissance Technologies, and AQR Capital Management were also bullish on Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), allocating a large percentage of their portfolios to this stock.
Now, specific money managers were breaking ground themselves. Iridian Asset Management, managed by David Cohen and Harold Levy, initiated the most valuable position in Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). Iridian Asset Management had $233.7 million invested in the company at the end of the quarter. Bill Miller's Miller Value Partners also initiated a $58.8 million position during the quarter. The other funds with brand new ALXN positions are Jerome Pfund and Michael Sjostrom's Sectoral Asset Management, Steve Cohen's Point72 Asset Management, and Michael Gelband's ExodusPoint Capital.
Let's now review hedge fund activity in other stocks similar to Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). These stocks are Paychex, Inc. (NASDAQ:PAYX), Credit Suisse Group AG (NYSE:CS), O'Reilly Automotive Inc (NASDAQ:ORLY), and Public Service Enterprise Group Incorporated (NYSE:PEG). This group of stocks' market caps match ALXN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAYX,34,862198,13 CS,11,217760,-3 ORLY,50,1820132,7 PEG,23,904765,-5 Average,29.5,951214,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $951 million. That figure was $2637 million in ALXN's case. O'Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 11 bullish hedge fund positions. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ALXN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ALXN were disappointed as the stock returned -25.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.