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Was The Smart Money Right About BioMarin (BMRN)?

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·6 min read
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In this article you are going to find out whether hedge funds think BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) investors should be aware of an increase in enthusiasm from smart money of late. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) was in 51 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 54. There were 44 hedge funds in our database with BMRN holdings at the end of September. Our calculations also showed that BMRN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Felix Baker - Baker Bros.
Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

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 let's check out the key hedge fund action surrounding BioMarin Pharmaceutical Inc. (NASDAQ:BMRN).

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

At the end of the fourth quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the third quarter of 2020. On the other hand, there were a total of 49 hedge funds with a bullish position in BMRN a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Baker Bros. Advisors was the largest shareholder of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), with a stake worth $665.5 million reported as of the end of December. Trailing Baker Bros. Advisors was Citadel Investment Group, which amassed a stake valued at $262.7 million. Palo Alto Investors, Avoro Capital Advisors (venBio Select Advisor), and D E Shaw 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 Copernicus Capital Management allocated the biggest weight to BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), around 14.65% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, dishing out 9.91 percent of its 13F equity portfolio to BMRN.

As industrywide interest jumped, specific money managers have jumped into BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) headfirst. Deerfield Management, managed by James E. Flynn, assembled the largest position in BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). Deerfield Management had $14.3 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride's Centiva Capital also made a $2.7 million investment in the stock during the quarter. The other funds with brand new BMRN positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Greg Martinez's Parkman Healthcare Partners, and Benjamin A. Smith's Laurion Capital Management.

Let's check out hedge fund activity in other stocks similar to BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). These stocks are SK Telecom Co., Ltd. (NYSE:SKM), GoodRx Holdings, Inc. (NASDAQ:GDRX), Korea Electric Power Corporation (NYSE:KEP), Ceridian HCM Holding Inc. (NYSE:CDAY), Cardinal Health, Inc. (NYSE:CAH), Albemarle Corporation (NYSE:ALB), and Live Nation Entertainment, Inc. (NYSE:LYV). This group of stocks' market caps resemble BMRN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKM,4,104096,0 GDRX,32,556602,-9 KEP,7,20539,2 CDAY,26,1281564,-10 CAH,49,1142309,4 ALB,21,126278,-6 LYV,46,1629672,-4 Average,26.4,694437,-3.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $694 million. That figure was $1671 million in BMRN's case. Cardinal Health, Inc. (NYSE:CAH) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is more popular among hedge funds. Our overall hedge fund sentiment score for BMRN is 88.3. 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. 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 still beat the market by 1.6 percentage points. Unfortunately BMRN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BMRN were disappointed as the stock returned -11.1% since the end of the fourth quarter (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 since 2019.

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

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