Allergan, Inc. (AGN): Hedge Funds Are Bullish and Insiders Are Undecided, What Should You Do?

Is Allergan, Inc. (NYSE:AGN) a buy?

In the eyes of many of your fellow readers, hedge funds are seen as useless, old financial vehicles of an era lost to time. Although there are over 8,000 hedge funds trading currently, Insider Monkey aim at the upper echelon of this club, about 525 funds. It is widely held that this group has its hands on most of the hedge fund industry’s total capital, and by monitoring their highest performing equity investments, we’ve revealed a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Equally as necessary, optimistic insider trading sentiment is another way to analyze the marketplace. Just as you’d expect, there are a variety of incentives for a bullish insider to downsize shares of his or her company, but only one, very clear reason why they would buy. Various empirical studies have demonstrated the market-beating potential of this method if “monkeys” know what to do (learn more here).

Furthermore, let’s examine the latest info about Allergan, Inc. (NYSE:AGN).

How are hedge funds trading Allergan, Inc. (NYSE:AGN)?

At the end of the second quarter, a total of 42 of the hedge funds we track held long positions in this stock, a change of 35% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially.

According to our 13F database, Sean Cullinan’s Point State Capital had the largest position in Allergan, Inc. (NYSE:AGN), worth close to $116.3 million, comprising 2% of its total 13F portfolio. Coming in second is Jacob Gottlieb of Visium Asset Management, with a $98.6 million position; 2.3% of its 13F portfolio is allocated to the company. Remaining hedge funds with similar optimism include Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Jim Simons’s Renaissance Technologies and Ken Griffin’s Citadel Investment Group.

With a general bullishness amongst the titans, certain bigger names have jumped into Allergan, Inc. (NYSE:AGN) headfirst. Point State Capital, managed by Sean Cullinan, created the biggest position in Allergan, Inc. (NYSE:AGN). Point State Capital had 116.3 million invested in the company at the end of the quarter. Jacob Gottlieb’s Visium Asset Management also initiated a $98.6 million position during the quarter. The other funds with new positions in the stock are Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Jim Simons’s Renaissance Technologies, and Ken Griffin’s Citadel Investment Group.

How have insiders been trading Allergan, Inc. (NYSE:AGN)?

Insider buying made by high-level executives is most useful when the primary stock in question has experienced transactions within the past six months. Over the last half-year time frame, Allergan, Inc. (NYSE:AGN) has seen zero unique insiders buying, and 4 insider sales (see the details of insider trades here).

We’ll also take a look at the relationship between both of these indicators in other stocks similar to Allergan, Inc. (NYSE:AGN). These stocks are Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY), Pharmacyclics, Inc. (NASDAQ:PCYC), Forest Laboratories, Inc. (NYSE:FRX), Novo Nordisk A/S (ADR) (NYSE:NVO), and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). All of these stocks are in the drug manufacturers – other industry and their market caps are similar to AGN’s market cap.

Using the returns shown by our studies, regular investors should always pay attention to hedge fund and insider trading sentiment, and Allergan, Inc. (NYSE:AGN) is an important part of this process.

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