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Hedge Funds Warming Up To Teva Pharmaceutical (TEVA) Again

Debasis Saha

In this article we will take a look at whether hedge funds think Teva Pharmaceutical Industries Limited (NYSE:TEVA) 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.

Teva Pharmaceutical Industries Limited (NYSE:TEVA) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. TEVA was in 29 hedge funds' portfolios at the end of March. There were 23 hedge funds in our database with TEVA holdings at the end of the previous quarter. Our calculations also showed that TEVA 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_26575" align="aligncenter" width="400"] Louis Bacon Moore of Moore Capital[/caption]

MOORE GLOBAL INVESTMENTS

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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. With all of this in mind let's go over the latest hedge fund action regarding Teva Pharmaceutical Industries Limited (NYSE:TEVA).

What does smart money think about Teva Pharmaceutical Industries Limited (NYSE:TEVA)?

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the fourth quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in TEVA a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is TEVA A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in Teva Pharmaceutical Industries Limited (NYSE:TEVA). Berkshire Hathaway has a $384.2 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Abrams Capital Management, managed by David Abrams, which holds a $215.9 million position; the fund has 8.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Bill Miller's Miller Value Partners,  Renaissance Technologies and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Teva Pharmaceutical Industries Limited (NYSE:TEVA), around 8.5% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, dishing out 4.57 percent of its 13F equity portfolio to TEVA.

As one would reasonably expect, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Teva Pharmaceutical Industries Limited (NYSE:TEVA). Arrowstreet Capital had $23.9 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey's Healthcor Management LP also made a $13.4 million investment in the stock during the quarter. The other funds with brand new TEVA positions are Louis Bacon's Moore Global Investments, Kevin Molloy's Iron Triangle Partners, and Michael Castor's Sio Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Teva Pharmaceutical Industries Limited (NYSE:TEVA) but similarly valued. We will take a look at Freeport-McMoRan Inc. (NYSE:FCX), Genuine Parts Company (NYSE:GPC), Hasbro, Inc. (NASDAQ:HAS), and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT). This group of stocks' market values resemble TEVA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCX,42,770016,-13 GPC,22,164418,1 HAS,25,451618,-11 JBHT,25,225951,-3 Average,28.5,403001,-6.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $867 million in TEVA's case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Genuine Parts Company (NYSE:GPC) is the least popular one with only 22 bullish hedge fund positions. Teva Pharmaceutical Industries Limited (NYSE:TEVA) 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on TEVA as the stock returned 39.5% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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