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Were These Hedge Funds Right About Betting On Jazz Pharmaceuticals Plc (JAZZ)?

Asma UL Husna
·6 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Jazz Pharmaceuticals Plc (NASDAQ:JAZZ).

Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 49. Our calculations also showed that JAZZ isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

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 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Alex Denner Sarissa Capital
Alex Denner Sarissa Capital

Alex Denner of Sarissa Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind let's take a gander at the recent hedge fund action surrounding Jazz Pharmaceuticals Plc (NASDAQ:JAZZ).

What does smart money think about Jazz Pharmaceuticals Plc (NASDAQ:JAZZ)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards JAZZ over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), with a stake worth $383.8 million reported as of the end of June. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $211 million. Citadel Investment Group, Sarissa Capital Management, and Millennium 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 Sarissa Capital Management allocated the biggest weight to Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), around 11.39% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 5.35 percent of its 13F equity portfolio to JAZZ.

Consequently, key hedge funds have jumped into Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most valuable position in Jazz Pharmaceuticals Plc (NASDAQ:JAZZ). Adage Capital Management had $24.8 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker's Woodline Partners also made a $11.5 million investment in the stock during the quarter. The other funds with brand new JAZZ positions are Joel Greenblatt's Gotham Asset Management, Donald Sussman's Paloma Partners, and Jerome Pfund and Michael Sjostrom's Sectoral Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) but similarly valued. These stocks are Ares Capital Corporation (NASDAQ:ARCC), National Retail Properties, Inc. (NYSE:NNN), Lumentum Holdings Inc (NASDAQ:LITE), Smartsheet Inc. (NYSE:SMAR), SYNNEX Corporation (NYSE:SNX), OGE Energy Corp. (NYSE:OGE), and Syneos Health, Inc. (NASDAQ:SYNH). This group of stocks' market valuations match JAZZ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARCC,19,150961,-7 NNN,17,86331,-2 LITE,42,678388,8 SMAR,47,2024773,6 SNX,24,502344,0 OGE,25,174922,4 SYNH,29,354964,7 Average,29,567526,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $568 million. That figure was $1164 million in JAZZ's case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 17 bullish hedge fund positions. Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JAZZ is 59.1. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on JAZZ as the stock returned 30.6% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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