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Is VRTX Stock A Buy or Sell?

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Abigail Fisher
·6 min read
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In this article you are going to find out whether hedge funds think Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) 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.

Is VRTX stock a buy or sell? Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has experienced a decrease in enthusiasm from smart money lately. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 53 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 56. There were 55 hedge funds in our database with VRTX holdings at the end of September. Our calculations also showed that VRTX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Alex Litowitz Magnetar Capital
Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

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 (or at the end of this article). With all of this in mind let's view the latest hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

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

Heading into the first quarter of 2021, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 53 hedge funds with a bullish position in VRTX 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.

The largest stake in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was held by Renaissance Technologies, which reported holding $845.1 million worth of stock at the end of December. It was followed by Citadel Investment Group with a $349.4 million position. Other investors bullish on the company included GLG Partners, D E Shaw, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 11.36% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, earmarking 5.32 percent of its 13F equity portfolio to VRTX.

Because Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of funds that decided to sell off their positions entirely last quarter. Intriguingly, Rajiv Jain's GQG Partners dropped the largest position of the "upper crust" of funds watched by Insider Monkey, worth close to $377.4 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund sold off about $20.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. These stocks are Dominion Energy Inc. (NYSE:D), Air Products & Chemicals, Inc. (NYSE:APD), Norfolk Southern Corp. (NYSE:NSC), Spotify Technology S.A. (NYSE:SPOT), General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), and VMware, Inc. (NYSE:VMW). This group of stocks' market valuations are similar to VRTX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position D,47,1506824,10 APD,50,1282433,1 NSC,44,783686,-3 SPOT,48,2688846,4 GM,70,6332871,10 MMC,43,1747012,8 VMW,35,405815,4 Average,48.1,2106784,4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.1 hedge funds with bullish positions and the average amount invested in these stocks was $2107 million. That figure was $3109 million in VRTX's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 35 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 57.1. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately VRTX wasn't nearly as popular as these 30 stocks and hedge funds that were betting on VRTX were disappointed as the stock returned -8.6% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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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