In this piece, we will take a look at ten biotechnology stocks to buy according to billionaire DE Shaw. If you want to skip the details about the hedge fund manager and his investment philosophy, as well as skip the top five stocks on this list, then take a look at 5 Biotech Stocks to Buy According to Billionaire David E. Shaw.
David Elliot Shaw, commonly known as D.E. Shaw, is an American billionaire hedge fund investor. He is the founder of the hedge fund D.E. Shaw which is based out of New York. The fund takes after its founder, being known for its analytical and research-based approach to investing.
Dr. Shaw is one of the few hedge fund executives out there that has a doctorate degree. As opposed to numerous other hedge fund founders and owners, who primarily started their careers in the investment and financial world, Dr. Shaw started out in a completely different industry. The hedge fund executive received his Ph.D. from the illustrious Stanford University in 1980, following which he would take a role as an assistant professor at Columbia University. At Columbia, he would conduct research in computer science.
Dr. Shaw’s investment career started in 1986 when he joined the famed investment bank, Morgan Stanley. At the bank, he was responsible for Morgan Stanley’s proprietary trading group, which involves using a bank’s own money for investments, as opposed to outside investors’ funds.
Just two years after joining one of the largest banks in the world, Dr. Shaw would set up D.E. Shaw and the rest is history. According to Forbes Magazine, Dr. Shaw was worth a cool $7.5 billion as of March 2022, making him one of the richest people in the world.
His hedge fund was set up on the top of a New York bookstore after Dr. Shaw secured $28 million in investment funds from a set of institutional and private investors. As opposed to having a background in finance, most of its early team was comprised of researchers and scientists, and the hedge fund placed specific emphasis on secrecy and the need to protect its secret sauce of algorithms.
The diversified employee approach is present at D.E. Shaw to this day, while Dr. Shaw has taken on a more research-oriented role at his firm, heading D.E. Shaw’s computational biology research group. That research group is responsible for conducting research on molecules, and it also develops technologies for supercomputers, which were Dr. Shaw’s favorite areas of interest during his academic years.
D.E. Shaw’s success over the decades is evident in the size of its portfolio. After having started out with $28 million in capital as mentioned above, the hedge fund now has a 13F portfolio worth $120 billion as of the close of last year. In this piece, we will focus on D.E. Shaw’s investments in the biotechnology sector, with the largest being in Moderna, Inc. (NASDAQ:MRNA) and Pfizer Inc. (NYSE:PFE). Another renowned company in the hedge fund’s portfolio is The Coca-Cola Company (NYSE:KO).
David E. Shaw of D.E. Shaw
Our Methodology
In order to root out Dr. Shaw’s hedge fund’s top biotechnology investments, we sifted through D.E. Shaw’s filings with the Securities and Exchange Commission for the fourth quarter of last year. After the companies were pinpointed, we studied them extensively through investor letters, earnings reports, analyst ratings, large shareholdings, and overall hedge fund sentiment gathered through Insider Monkey’s database of 924 hedge funds that filed 13Fs for Q4 2021.
10 Biotech Stocks to Buy According to Billionaire David E. Shaw
10. Eli Lilly and Company (NYSE:LLY)
D.E. Shaw’s Stake Value: $106 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.06%
Number of Hedge Fund Holders: 63
Eli Lilly and Company (NYSE:LLY) is one of the oldest pharmaceutical firms in the world, as it was founded in 1876. The company is headquartered in New Jersey and develops several different kinds of drugs including those for cancer, arthritis, and diabetes. The company also has a biopharmaceutical plant in Cork, Ireland.
Dr. Shaw’s investment firm owned 384,012 Eli Lilly and Company (NYSE:LLY) shares by the end of the fourth quarter of last year for a $106 million stake which represented 0.06% of the value of the firm’s 13F investment portfolio. During the same time period, 63 hedge funds tracked by Insider Monkey owned a stake in the company. Eli Lilly and Company (NYSE:LLY)’s largest investor in our database is Ken Fisher’s Fisher Asset Management which owns 6.9 million shares worth $1.9 billion.
Eli Lilly and Company (NYSE:LLY) earned $8 billion in revenue and $2.49 in non-GAAP EPS for its fiscal fourth quarter, beating analyst estimates for revenue but missing them for EPS. BofA raised its price target on LLY shares to $315 from $300 in March 2022, stating that the company’s weight loss drug is underrated amongst Wall Street analysts.
Saturna Capital mentioned the company in its fourth quarter 2021 investor letter and outlined that:
“Industrials and pharmaceutical companies were among the Amana Income Fund’s strongest performers in the fourth quarter. Industrials and pharmaceutical companies were among the Amana Income Fund’s strongest performers in the fourth quarter. Drug maker Eli Lilly is represented in the 10 Largest Contributors.”
Along with The Coca-Cola Company (NYSE:KO), Moderna, Inc. (NASDAQ:MRNA), and Pfizer Inc. (NYSE:PFE), Eli Lilly and Company (NYSE:LLY) is a stock on D.E. Shaw’s radar.
9. Baxter International Inc. (NYSE:BAX)
D.E. Shaw’s Stake Value: $136 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.11%
Number of Hedge Fund Holders: 44
Baxter International Inc. (NYSE:BAX) is an American healthcare firm that provides a host of products globally. These include dialysis services, critical care products, nutritional services, and biological products for use in surgeries. Additionally, it also offers contracted services to biopharmaceutical firms.
After its fiscal Q4 came to an end, Baxter International Inc. (NYSE:BAX) reported $3.5 billion in revenue and $1.04 in non-GAAP EPS for the period, a strong set of results that saw it beat analyst estimates for both. UBS raised its price target on the stock to $91 from $88 in February 2022, outlining that the strong quarterly results coupled with an expected improvement in its supply backlog will bode well for the company.
D.E. Shaw held 1.58 million Baxter International Inc. (NYSE:BAX) shares at the end of Q4 2021, for a $136 million stake. 44 hedge funds tracked by Insider Monkey had long positions in the firm as of December 31. David Blood and Al Gore’s Generation Investment Management is Baxter International Inc. (NYSE:BAX)’s largest shareholder among that group, owning 21 million shares worth $1.8 billion.
Cooper Investors mentioned the company in its third quarter 2021 investor letter, stating that:
“During the quarter we exited our position in Baxter, having originally bought in 2017 as a Low Risk Turnaround with clear Stalwart attributes. In essence, the core businesses were highly durable, providing life sustaining or saving medical products such as IV medication or pumps and dialysis machines.
They had been mismanaged prior to the company spinning off its biopharmaceutical business in 2015 which had generated most of the Baxter’s operating profit. With a new CEO in Joe Almeida, who came with a successful track record leading another medical device company (Covidien) we identified three sources of value latency for the new standalone Baxter.
Firstly, optimising the cost structure. Baxter were successful here – they were able to effectively double operating margins from low single digits to mid-to-high teens over a relatively short four-year period. Secondly, accelerating sales growth through a more focused R&D effort. This is inherently more difficult than cost optimisation and on this front success has been muted with only moderate impact to revenues from new product introductions. Finally, capital deployment through Baxter’s significantly under-levered balance sheet. Several smaller bolt-on acquisitions were nicely complementary to the existing portfolio, but in early September the company announced the acquisition of Hil-Rom Holdings, a medical device company with leading positions in bed systems and patient monitoring. The deal is significant at US$12.5bn in size, and exhausts all balance sheet latency in one fell swoop.
8. Biogen Inc. (NASDAQ:BIIB)
D.E. Shaw’s Stake Value: $143 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.11%
Number of Hedge Fund Holders: 64
Biogen Inc. (NASDAQ:BIIB) is a company that focuses on treatments for neurological and neurodegenerative diseases such as muscular atrophy, multiple sclerosis, Alzheimer’s disease, arthritis, and lymphoma, among others. It describes itself as one of the first biotechnology companies in the world after being founded in 1978.
As of the end of last year, D.E. Shaw’s stake in Biogen Inc. (NASDAQ:BIIB) was worth $143 million. It came via the firm owning 596,961 shares. Biogen Inc. (NASDAQ:BIIB)’s largest investor that is tracked by our database is Jim Simons’ Renaissance Technologies, which owns 1.07 million shares worth $258 million.
Biogen Inc. (NASDAQ:BIIB) posted $2.74 billion in revenue and $3.39 in non-GAAP EPS for its fiscal Q4, beating analyst estimates for both. BofA reduced its share price target on BIIB to $225 from $230 in March 2022, outlining that the company’s Alzheimer’s drug developed with another firm could potentially result in a negative net present value.
Longleaf Partners Fund mentioned the company in its fourth quarter 2021 investor letter. Here is what the firm said:
“Biogen (83%, 2.43%; 5%, 0.10%), a biotechnology company specializing in therapies for the treatment of neurological diseases, was a strong contributor before we exited the position in the first half. We began acquiring shares in January 2021, paying between 9- 11x FCF and a discount to our appraisal, even if the company’s promising drug pipeline turned out to be worth 0. After Biogen’s Alzheimer drug Aduhelm was approved in June, we quickly sold out after the stock’s price appreciated over 70% and briefly exceeded our appraisal of the value. We re-initiated a position in Biogen in December at a price below our original cost basis from January. The stock became very cheap once again after Aduhelm’s early sales disappointed due to its high initial cost before management correctly cut the price. We think Biogen’s core Multiple sclerosis (MS) and Biosimilars businesses are strong enough to create sustainable double-digit EPS growth, even if Aduhelm and the entire Alzheimer’s program is worth zero. We also expect a board led by large shareholders to continue the company’s accretive repurchase, while considering other beneficial corporate actions.”
7. Novartis AG (NYSE:NVS)
D.E. Shaw’s Stake Value: $159 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.13%
Number of Hedge Fund Holders: 27
Novartis AG (NYSE:NVS) is a Swiss healthcare company that provides medicines and materials used in medicine production. The company’s Global Biotech division offers contract manufacturing services to third parties for manufacturing biotechnological products using stringent standards.
For its fiscal fourth quarter, Novartis AG (NYSE:NVS) posted $13.3 billion in revenue and $1.40 in non-GAAP EPS, an underwhelming set of results that saw it miss Wall Street analyst estimates for both metrics. Stifel set a CHF87 price target ($93.98) for the company in February 2022, as it shared its belief that the company’s share price has performed far worse than its operations have.
Dr. Shaw’s investment firm owned 1.82 million Novartis AG (NYSE:NVS) shares at the end of Q4 2021, for a $159 million stake which represented 0.13% of its investment portfolio’s value. 27 hedge funds tracked by Insider Monkey owned the company’s shares, with Ken Fisher’s Fisher Asset Management being Novartis AG (NYSE:NVS)’s largest investor, holding 10.4 million shares worth $908 million.
6. Johnson & Johnson (NYSE:JNJ)
D.E. Shaw’s Stake Value: $177 million
Percentage of D.E. Shaw’s 13F Portfolio: 0.14%
Number of Hedge Fund Holders: 85
Johnson & Johnson (NYSE:JNJ) is an American healthcare firm that was founded in 1886 and is based out of New Brunswick, New Jersey. It sells consumer healthcare products, different kinds of pharmaceutical products, and medical devices. Additionally, the company has taken a keen interest in the biotechnology sector by incubating startups – a fact that was recognized by Fast Company in 2017.
D.E. Shaw held a $177 million stake in Johnson & Johnson (NYSE:JNJ) at the end of the fourth quarter of last year, owning 1.04 million shares. Of the 924 hedge funds tracked by Insider Monkey’s database which filed 13Fs for the Q4 period, 85 of them owned the company’s shares. Johnson & Johnson (NYSE:JNJ) largest investor among them was Terry Smith’s Fundsmith LLP, which owned 7.22 million shares worth $1.23 billion.
Johnson & Johnson (NYSE:JNJ) reported $24.8 billion in revenue and $2.13 in non-GAAP EPS for its fiscal fourth quarter, in a mixed bag of results that beat analysts’ EPS estimates but missed them for revenue. Bernstein raised its price target on JNJ shares to $183 from $180 in March 2022, stating that the company’s pharmaceutical business is headed for some dark times.
Moderna, Inc. (NASDAQ:MRNA), The Coca-Cola Company (NYSE:KO), and Pfizer Inc. (NYSE:PFE) are joined by Johnson & Johnson (NYSE:JNJ) in Dr. Shaw’s list of hot stocks.
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Disclosure: None. 10 Biotech Stocks to Buy According to Billionaire David E. Shaw is originally published on Insider Monkey.
