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Is ICON Public Limited (ICLR) A Smart Long-Term Buy?

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Baron Funds, an asset management firm, published its “Baron Health Care Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 11.43% was delivered by the fund’s institutional shares for the Q1 of 2021, outperforming both its S&P 500 and Russell 3000 Health Care benchmarks that delivered 8.55% and 8.16% returns respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Baron Funds, the fund mentioned ICON Public Limited Company (NASDAQ: ICLR) and discussed its stance on the firm. ICON Public Limited Company is a Dublin, Ireland-based medical device company with a $19 billion market capitalization. ICLR delivered a 22.61% return since the beginning of the year, while its 12-month returns are up by 27.21%. The stock closed at $239.06 per share on August 13, 2021.

Here is what Baron Funds has to say about ICON Public Limited Company in its Q2 2021 investor letter:

"We added to our position in ICON Plc, a leading contract research organization (“CRO”) which provides outsourced drug and device development and commercialization services to pharmaceutical, biotechnology, medical device, and government and public health organizations. We continue to believe the merger with PRA Health Sciences, Inc. will be a good, accretive transaction for ICON. The CRO sector is experiencing healthy growth driven by record levels of biotechnology funding, solid biopharmaceutical R&D spend, and continued outsourcing of clinical development. Long term, management targets high single-digit revenue growth and mid-teens earnings growth. We continue to see significant upside in the stock price over a multi-year period."

Photo by National Cancer Institute on Unsplash

Based on our calculations, ICON Public Limited Company (NASDAQ: ICLR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ICLR was in 29 hedge fund portfolios at the end of the first quarter of 2021. ICON Public Limited Company (NASDAQ: ICLR) delivered a 4.30% return in the past 3 months.

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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage.

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