"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Gilead Sciences, Inc. (NASDAQ:GILD) and see how it was affected.
Is Gilead Sciences, Inc. (NASDAQ:GILD) undervalued? The smart money is becoming hopeful. The number of long hedge fund positions increased by 1 lately. Our calculations also showed that GILD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GILD was in 58 hedge funds' portfolios at the end of September. There were 57 hedge funds in our database with GILD positions at the end of the previous quarter. 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 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_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/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 take a look at the recent hedge fund action encompassing Gilead Sciences, Inc. (NASDAQ:GILD).
What have hedge funds been doing with Gilead Sciences, Inc. (NASDAQ:GILD)?
At the end of the third quarter, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. By comparison, 56 hedge funds held shares or bullish call options in GILD a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the number one position in Gilead Sciences, Inc. (NASDAQ:GILD). Renaissance Technologies has a $933.9 million position in the stock, comprising 0.8% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by David E. Shaw, holding a $349.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain John Overdeck and David Siegel's Two Sigma Advisors, Cliff Asness's AQR Capital Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Gilead Sciences, Inc. (NASDAQ:GILD), around 11.67% of its portfolio. Healthcare Value Capital is also relatively very bullish on the stock, setting aside 8.01 percent of its 13F equity portfolio to GILD.
Now, some big names were leading the bulls' herd. Perella Weinberg Partners created the largest position in Gilead Sciences, Inc. (NASDAQ:GILD). Perella Weinberg Partners had $3.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also initiated a $3 million position during the quarter. The other funds with new positions in the stock are Jeffrey Talpins's Element Capital Management, Lee Ainslie's Maverick Capital, and Minhua Zhang's Weld Capital Management.
Let's now review hedge fund activity in other stocks similar to Gilead Sciences, Inc. (NASDAQ:GILD). We will take a look at Mondelez International Inc (NASDAQ:MDLZ), General Electric Company (NYSE:GE), Altria Group Inc (NYSE:MO), and CME Group Inc (NASDAQ:CME). This group of stocks' market caps resemble GILD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDLZ,52,2813252,5 GE,51,4455114,-5 MO,47,1364557,9 CME,46,2245287,7 Average,49,2719553,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $2720 million. That figure was $3263 million in GILD's case. Mondelez International Inc (NASDAQ:MDLZ) is the most popular stock in this table. On the other hand CME Group Inc (NASDAQ:CME) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks Gilead Sciences, Inc. (NASDAQ:GILD) 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 GILD, though not to the same extent, as the stock returned 6.1% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.