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Hedge Funds Are Warming Up To Pfizer Inc. (PFE)

Abigail Fisher

In this article we will check out the progression of hedge fund sentiment towards Pfizer Inc. (NYSE:PFE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Pfizer Inc. (NYSE:PFE) a buy right now? Money managers are getting more bullish. The number of long hedge fund bets went up by 5 in recent months. Our calculations also showed that PFE 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.

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 S&P 500 ETFs by 44 percentage points since March 2017 (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.

[caption id="attachment_758429" align="aligncenter" width="399"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“.  We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the recent hedge fund action encompassing Pfizer Inc. (NYSE:PFE).

What does smart money think about Pfizer Inc. (NYSE:PFE)?

At Q1's end, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PFE over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Pfizer Inc. (NYSE:PFE) was held by D E Shaw, which reported holding $383.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $361.2 million position. Other investors bullish on the company included Diamond Hill Capital, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position Endurant Capital Management allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 7.55% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, earmarking 4.69 percent of its 13F equity portfolio to PFE.

Consequently, specific money managers were leading the bulls' herd. OrbiMed Advisors, managed by Samuel Isaly, created the largest position in Pfizer Inc. (NYSE:PFE). OrbiMed Advisors had $98.3 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $71.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Rockefeller and KarláKroeker's Woodline Partners, Steve Cohen's Point72 Asset Management, and John Brennan's Sirios Capital Management.

Let's now review hedge fund activity in other stocks similar to Pfizer Inc. (NYSE:PFE). These stocks are The Walt Disney Company (NYSE:DIS), Toyota Motor Corporation (NYSE:TM), PepsiCo, Inc. (NASDAQ:PEP), and Cisco Systems, Inc. (NASDAQ:CSCO). This group of stocks' market valuations resemble PFE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DIS,102,4701800,-16 TM,11,206410,-1 PEP,57,2820020,-2 CSCO,58,2531778,-10 Average,57,2565002,-7.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $2565 million. That figure was $3160 million in PFE's case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Pfizer Inc. (NYSE:PFE) is not the most popular stock in this group but hedge fund interest is still above average. 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 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on PFE, though not to the same extent, as the stock returned 16% during the first two months of the second quarter (through May 22nd) and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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