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Was The Smart Money Right About AstraZeneca plc (AZN)?

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·6 min read
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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding AstraZeneca plc (NYSE:AZN).

Is AstraZeneca plc (NYSE:AZN) a buy, sell, or hold? Prominent investors were turning bullish. The number of long hedge fund bets increased by 8 recently. AstraZeneca plc (NYSE:AZN) was in 41 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AZN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners
Rajiv Jain of GQG Partners

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. Keeping this in mind we're going to check out the new hedge fund action regarding AstraZeneca plc (NYSE:AZN).

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

At the end of the fourth quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in AZN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AZN A Good Stock To Buy?
Is AZN A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in AstraZeneca plc (NYSE:AZN), which was worth $892.4 million at the end of the fourth quarter. On the second spot was GQG Partners which amassed $768.2 million worth of shares. Arrowstreet Capital, D E Shaw, and Point72 Asset 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 Eversept Partners allocated the biggest weight to AstraZeneca plc (NYSE:AZN), around 5.07% of its 13F portfolio. Sabby Capital is also relatively very bullish on the stock, dishing out 3.5 percent of its 13F equity portfolio to AZN.

As one would reasonably expect, specific money managers were leading the bulls' herd. D E Shaw, managed by D. E. Shaw, initiated the most outsized position in AstraZeneca plc (NYSE:AZN). D E Shaw had $213.8 million invested in the company at the end of the quarter. Frank Brosens's Taconic Capital also initiated a $26.5 million position during the quarter. The other funds with new positions in the stock are Carl Tiedemann and Michael Tiedemann's TIG Advisors, Michael Castor's Sio Capital, and Dmitry Balyasny's Balyasny Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as AstraZeneca plc (NYSE:AZN) but similarly valued. We will take a look at Philip Morris International Inc. (NYSE:PM), Citigroup Inc. (NYSE:C), Starbucks Corporation (NASDAQ:SBUX), Sony Corporation (NYSE:SNE), Wells Fargo & Company (NYSE:WFC), Morgan Stanley (NYSE:MS), and Sanofi (NYSE:SNY). This group of stocks' market values are similar to AZN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PM,52,4426846,2 C,95,7120499,4 SBUX,67,4990840,1 SNE,28,593971,2 WFC,99,8748819,9 MS,66,5665191,-4 SNY,15,1145189,-5 Average,60.3,4670194,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 60.3 hedge funds with bullish positions and the average amount invested in these stocks was $4670 million. That figure was $2984 million in AZN's case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Sanofi (NYSE:SNY) is the least popular one with only 15 bullish hedge fund positions. AstraZeneca plc (NYSE:AZN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AZN is 55.5. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and surpassed the market again by 1.6 percentage points. Unfortunately AZN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AZN investors were disappointed as the stock returned 8.2% since the end of December (through 4/30) 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 in 2020.

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

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