How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and determine whether hedge funds had an edge regarding this stock.
Is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) a buy right now? Hedge funds were getting less optimistic. The number of bullish hedge fund positions were cut by 2 recently. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 54 hedge funds' portfolios at the end of June. The all time high for this statistics is 56. Our calculations also showed that VRTX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are many formulas investors use to value publicly traded companies. Some of the most innovative formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can beat the market by a significant amount (see the details here).
Samuel Isaly of OrbiMed Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we're going to go over the latest hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).
How have hedgies been trading Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?
At second quarter's end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in VRTX a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was held by Renaissance Technologies, which reported holding $1678.4 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $353 million position. Other investors bullish on the company included GQG Partners, OrbiMed Advisors, and AQR Capital Management. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 7.1% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, earmarking 4.31 percent of its 13F equity portfolio to VRTX.
Judging by the fact that Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that elected to cut their positions entirely in the second quarter. Intriguingly, Ken Griffin's Citadel Investment Group dropped the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $106.4 million in stock. Arsani William's fund, Logos Capital, also cut its stock, about $7.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. These stocks are Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Mondelez International Inc (NASDAQ:MDLZ), Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), Becton, Dickinson and Company (NYSE:BDX), Rio Tinto Group (NYSE:RIO), and Crown Castle International Corp. (NYSE:CCI). This group of stocks' market valuations are closest to VRTX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KOF,5,358015,-2 MDLZ,54,2594722,0 MO,43,1289543,-3 ZM,48,6758811,1 BDX,53,1971353,-3 RIO,20,1324146,0 CCI,43,1988345,3 Average,38,2326419,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2326 million. That figure was $3478 million in VRTX's case. Mondelez International Inc (NASDAQ:MDLZ) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 5 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 81.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately VRTX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VRTX were disappointed as the stock returned -7.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.