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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Taro Pharmaceutical Industries Ltd. (NYSE:TARO).
Is TARO a good stock to buy now? Money managers were becoming less confident. The number of long hedge fund positions were trimmed by 1 recently. Taro Pharmaceutical Industries Ltd. (NYSE:TARO) was in 9 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 23. Our calculations also showed that TARO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Kamran Moghtaderi of Eversept Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now we're going to analyze the recent hedge fund action regarding Taro Pharmaceutical Industries Ltd. (NYSE:TARO).
Do Hedge Funds Think TARO Is A Good Stock To Buy Now?
At Q3's end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in TARO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies, founded by Jim Simons, holds the number one position in Taro Pharmaceutical Industries Ltd. (NYSE:TARO). Renaissance Technologies has a $42.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Kamran Moghtaderi of Eversept Partners, with a $7.8 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other peers that are bullish contain D. E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Taro Pharmaceutical Industries Ltd. (NYSE:TARO), around 1.75% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, earmarking 0.45 percent of its 13F equity portfolio to TARO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Caxton Associates LP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified TARO as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks similar to Taro Pharmaceutical Industries Ltd. (NYSE:TARO). We will take a look at ESCO Technologies Inc. (NYSE:ESE), Upwork Inc. (NASDAQ:UPWK), First Majestic Silver Corp (NYSE:AG), Kennedy-Wilson Holdings Inc (NYSE:KW), Brady Corp (NYSE:BRC), Moog Inc (NYSE:MOG), and Arconic Corporation (NYSE:ARNC). This group of stocks' market valuations resemble TARO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESE,14,74701,7 UPWK,27,294152,2 AG,14,52631,0 KW,18,346851,4 BRC,19,139850,2 MOG,19,111492,-4 ARNC,21,633163,5 Average,18.9,236120,2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $60 million in TARO's case. Upwork Inc. (NASDAQ:UPWK) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is even less popular than ESE. Our overall hedge fund sentiment score for TARO is 15.7. 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. Hedge funds clearly dropped the ball on TARO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on TARO as the stock returned 31% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.