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Is Merck & Co., Inc. (MRK) Going to Burn These Hedge Funds?

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Merck & Co., Inc. (NYSE:MRK).

Merck & Co., Inc. (NYSE:MRK) was in 79 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 84. MRK has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 82 hedge funds in our database with MRK positions at the end of the fourth quarter. Our calculations also showed that MRK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

If you'd ask most market participants, hedge funds are seen as unimportant, outdated financial vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers look at the upper echelon of this group, about 850 funds. It is estimated that this group of investors handle bulk of the smart money's total asset base, and by keeping track of their first-class equity investments, Insider Monkey has unearthed a few investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

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At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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. Now we're going to take a glance at the key hedge fund action encompassing Merck & Co., Inc. (NYSE:MRK).

Do Hedge Funds Think MRK Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 79 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MRK over the last 23 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Berkshire Hathaway was the largest shareholder of Merck & Co., Inc. (NYSE:MRK), with a stake worth $1378.6 million reported as of the end of March. Trailing Berkshire Hathaway was Fisher Asset Management, which amassed a stake valued at $760 million. D E Shaw, Arrowstreet Capital, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Merck & Co., Inc. (NYSE:MRK), around 8.43% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, earmarking 6.35 percent of its 13F equity portfolio to MRK.

Because Merck & Co., Inc. (NYSE:MRK) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that slashed their full holdings heading into Q2. At the top of the heap, Roberto Mignone's Bridger Management said goodbye to the biggest position of the "upper crust" of funds watched by Insider Monkey, worth close to $48.2 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also cut its stock, about $11.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q2.

Let's now review hedge fund activity in other stocks similar to Merck & Co., Inc. (NYSE:MRK). These stocks are Novartis AG (NYSE:NVS), AbbVie Inc (NYSE:ABBV), Broadcom Inc (NASDAQ:AVGO), Accenture Plc (NYSE:ACN), Thermo Fisher Scientific Inc. (NYSE:TMO), Eli Lilly and Company (NYSE:LLY), and Texas Instruments Incorporated (NASDAQ:TXN). All of these stocks' market caps are closest to MRK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVS,19,1709243,-4 ABBV,72,5916781,-11 AVGO,53,3313279,-6 ACN,48,2350908,-2 TMO,79,6254066,-10 LLY,55,2522416,5 TXN,42,2532768,-14 Average,52.6,3514209,-6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.6 hedge funds with bullish positions and the average amount invested in these stocks was $3514 million. That figure was $6494 million in MRK's case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 19 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRK is 80.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately MRK wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MRK were disappointed as the stock returned 3.7% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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