Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
AmerisourceBergen Corporation (NYSE:ABC) was in 36 hedge funds' portfolios at the end of June. ABC has seen an increase in hedge fund sentiment recently. There were 28 hedge funds in our database with ABC positions at the end of the previous quarter. Our calculations also showed that ABC isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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 take a glance at the fresh hedge fund action regarding AmerisourceBergen Corporation (NYSE:ABC).
How have hedgies been trading AmerisourceBergen Corporation (NYSE:ABC)?
Heading into the third quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ABC over the last 16 quarters. 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, Baupost Group held the most valuable stake in AmerisourceBergen Corporation (NYSE:ABC), which was worth $188.8 million at the end of the second quarter. On the second spot was Glenview Capital which amassed $139.2 million worth of shares. Moreover, Citadel Investment Group, Millennium Management, and GLG Partners were also bullish on AmerisourceBergen Corporation (NYSE:ABC), allocating a large percentage of their portfolios to this stock.
Now, key hedge funds have jumped into AmerisourceBergen Corporation (NYSE:ABC) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the biggest position in AmerisourceBergen Corporation (NYSE:ABC). Two Sigma Advisors had $8.3 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also made a $3.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Mike Vranos's Ellington, Robert B. Gillam's McKinley Capital Management, and David Harding's Winton Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to AmerisourceBergen Corporation (NYSE:ABC). We will take a look at Cheniere Energy, Inc. (NYSEAMEX:LNG), KeyCorp (NYSE:KEY), Restaurant Brands International Inc (NYSE:QSR), and Franklin Resources, Inc. (NYSE:BEN). All of these stocks' market caps match ABC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LNG,43,4383992,-10 KEY,31,931275,-1 QSR,39,3041086,2 BEN,25,636749,-3 Average,34.5,2248276,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $2248 million. That figure was $625 million in ABC's case. Cheniere Energy, Inc. (NYSEAMEX:LNG) is the most popular stock in this table. On the other hand Franklin Resources, Inc. (NYSE:BEN) is the least popular one with only 25 bullish hedge fund positions. AmerisourceBergen Corporation (NYSE:ABC) 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 ABC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ABC were disappointed as the stock returned -3% 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.