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Should You Still Invest in Vertex Pharmaceuticals (VRTX) Despite its Poor Q1 Results?

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ClearBridge Investments, an investment management firm, published its “Aggressive Growth Strategy” first quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Aggressive Growth Strategy outperformed its Russell 3000 Growth Index benchmark in the first quarter. On an absolute basis, the Strategy generated gains across seven of the eight sectors in which it was invested (out of 11 sectors total). You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

ClearBridge Investments, in its Q1 2021 investor letter, mentioned Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX), and shared their insights on the company. Vertex Pharmaceuticals Incorporated is a Boston, Massachusetts-based biopharmaceutical company that currently has a $49.5 billion market capitalization. Since the beginning of the year, VRTX delivered a -19.05% return, extending its 12-month losses to -35.18%. As of June 23, 2021, the stock closed at $187.52 per share.

Here is what ClearBridge Investments has to say about Vertex Pharmaceuticals Incorporated in its Q1 2021 investor letter:

"While equity participation has been broadening, not all sectors and industries have benefited. Health care, which represents the Strategy’s second largest overweight, has lagged in recent months but we believe positive vaccine development and upcoming clinical news for other therapeutics will eventually lead to greater recognition by investors. Vertex Pharmaceuticals, continues to expand its cystic fibrosis franchise globally while advancing multiple underappreciated pipeline assets."

best biotech penny stocks to buy
best biotech penny stocks to buy

Photo by National Cancer Institute on Unsplash

Our calculations show that Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Vertex Pharmaceuticals Incorporated was in 68 hedge fund portfolios, compared to 53 funds in the fourth quarter of 2020. VRTX delivered a -9.97% 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, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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.