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In this article we will take a look at whether hedge funds think Galapagos NV (NASDAQ:GLPG) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Galapagos NV (NASDAQ:GLPG) a sound stock to buy now? Hedge funds are in an optimistic mood. The number of bullish hedge fund bets inched up by 1 lately. Our calculations also showed that GLPG isn't among the 30 most popular stocks among hedge funds (click for Q1 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 the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Nathan Fischel of DAFNA Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to check out the latest hedge fund action regarding Galapagos NV (NASDAQ:GLPG).
Hedge fund activity in Galapagos NV (NASDAQ:GLPG)
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in GLPG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Galapagos NV (NASDAQ:GLPG) was held by Renaissance Technologies, which reported holding $46.1 million worth of stock at the end of September. It was followed by Rock Springs Capital Management with a $34.3 million position. Other investors bullish on the company included Cormorant Asset Management, Arrowstreet Capital, and DAFNA Capital Management. In terms of the portfolio weights assigned to each position DAFNA Capital Management allocated the biggest weight to Galapagos NV (NASDAQ:GLPG), around 3.79% of its 13F portfolio. Aquilo Capital Management is also relatively very bullish on the stock, setting aside 3.38 percent of its 13F equity portfolio to GLPG.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Biotechnology Value Fund / BVF Inc, managed by Mark Lampert, established the most outsized position in Galapagos NV (NASDAQ:GLPG). Biotechnology Value Fund / BVF Inc had $1.5 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Greg Eisner's Engineers Gate Manager.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Galapagos NV (NASDAQ:GLPG) but similarly valued. We will take a look at The J.M. Smucker Company (NYSE:SJM), Domino's Pizza, Inc. (NYSE:DPZ), Weyerhaeuser Co. (NYSE:WY), and The Hartford Financial Services Group, Inc. (NYSE:HIG). This group of stocks' market caps are similar to GLPG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SJM,36,479070,5 DPZ,45,1759501,14 WY,35,195583,5 HIG,37,708354,3 Average,38.25,785627,6.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $786 million. That figure was $152 million in GLPG's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand Weyerhaeuser Co. (NYSE:WY) is the least popular one with only 35 bullish hedge fund positions. Compared to these stocks Galapagos NV (NASDAQ:GLPG) is even less popular than WY. Hedge funds dodged a bullet by taking a bearish stance towards GLPG. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately GLPG wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GLPG investors were disappointed as the stock returned 5% during the second quarter (through June 25th) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.