Billionaire Investors Are Betting on These Healthcare Stocks in Q4

The third quarter of 2015 was one of the worst periods that stocks from the healthcare sector have seen in the recent times. However, in spite of the turbulence they experienced in that period there is no denying the fact that healthcare and biotechnology have been two of the best performing sectors in the last four years. While the S&P 500 is up ‘only’ by 65.35% since the start of 2012, the S&P 500 Health Care boasts of returns of 105.5% and the NASDAQ Biotechnology Index is up by a whopping 213% during the same period. Due to its consistent outperformance, healthcare was renowned for a long time as one of the most preferred sector for some of the brightest minds (read -billionaires) in Wall Street to invest in. However, it was only in the third quarter when the stocks from the sector slumped hard, one actually saw the conviction that these billionaire investors have on their healthcare picks. Keeping that in mind, we at Insider Monkey thought to compile a list of the most popular healthcare stocks among billionaire investors going into the fourth quarter. Read further, to know which stocks made it to our list.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 49% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

Billionaires with Long Positions (as of September 30): 13

Aggregate Value of Billionaires’ Holdings (as of September30): $10.72 Billion

Although the number of billionaires covered by Insider Monkey that held a stake in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) remained constant during the July-September period, the aggregate value of their holdings in the company declined by 18.4% during the same period. Since Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock declined by 19.7% during the same period, one can safely assume that the decline witnessed in the aggregate value of billionaires’ holdings was mostly due to this correction in the stock. Continuing their decline in the fourth quarter, shares of Valeant Pharmaceuticals Intl Inc currently trade down more than 32% year-to-date. A major reason for the company’s stock decline in the last few weeks have been the recent allegations of accounting fraud against it. However, while other investors were selling the stock of the company after rumor of the alleged accounting fraud started spreading, revered activist investor Bill Ackman‘s Pershing Square Capital displayed its conviction in the stock by disclosing that it now owns 32.14 million shares or 9.9% of all common stock of the company in a regulatory filing last week.

#4 Walgreens Boots Alliance Inc (NASDAQ:WBA)

Billionaires with Long Positions (as of September 30): 14

Aggregate Value of Billionaires’ Holdings (as of September30): $5.68 Billion

Despite the aggregate value of billionaires’ holdings in Walgreens Boots Alliance Inc (NASDAQ:WBA) remaining nearly constant at the start and end of the third quarter, the number of billionaires tracked by us that disclosed a stake in the company jumped up by two during the same period. Shares of Walgreens Boots Alliance Inc (NASDAQ:WBA) have traded in the $80-$90 range for the most part this year and currently trade up 9.3% year-to-date. On October 28, the same day it reported its fiscal 2015 fourth quarter results, the company also announced that it would be acquiring smaller rival  Rite Aid Corporation (NYSE:RAD) for $17.2 billion. On November 16, analysts at Credit Suisse reiterated their ‘Outperform’ rating on the stock, but lowered their price target to $100 from $110. Even after reducing its stake in the company by 6% to 23.27 million shares during the third quarter, billionaire Andreas Halvorsen‘s Viking Global remained the largest shareholder of the company among the funds covered by us at the end of that period.

#3 Zoetis Inc (NYSE:ZTS)

Billionaires with Long Positions (as of September 30): 14

Aggregate Value of Billionaires’ Holdings (as of September30): $3.06 Billion

Similar to what happened with Walgreens Boots Alliance, the aggregate value of billionaires’ holdings in Zoetis Inc (NYSE:ZTS) also saw only a minor decline during the third quarter, while the number of billionaires tracked by us that were long in the company went up by two during the same time. Though shares of Zoetis Inc (NYSE:ZTS) lost over 14% during the third quarter, they have recovered since then and now trade with year-to-date gains of 7.76%. On November 3 the company reported its third quarter earnings, declaring EPS of $0.50 on revenue of $1.20 billion versus analysts’ expectations of EPS of $0.40 on revenue of $1.18 billion. Following the earnings release, analysts at Piper Jaffray reiterated their ‘Overweight’ rating on the stock, while increasing their price target on it to $58 from $55. With ownership of over 41.8 million shares of the company, Bill Ackman’s Pershing Square remained its largest shareholder at the end of September among the funds covered in our database.

#2 Pfizer Inc. (NYSE:PFE)

Billionaires with Long Positions (as of September 30): 15

Aggregate Value of Billionaires’ Holdings (as of September30): $2.76 Billion

If there was one company whose shares billionaire investors lapped up in droves during the third quarter, it has to be Pfizer Inc. (NYSE:PFE). Not only did the number of billionaires with long position in Pfizer Inc. (NYSE:PFE) nearly doubled quarter-over-quarter from just 8 in June, the aggregate value of billionaires” holdings in the company also saw a jump of over 40% during the same period. Moreover, all this happened in a quarter when shares of Pfizer Inc. went down by 5.6% and in a year when they have largely remained range bound. Pfizer recently announced that it would acquire Allergan PLC (NYSE:AGN) for $160 billion. While rumors of this deal had been floating around for quite some time, the formal announcement came in only on November 24 and ever since the deal has drawn a lot of criticism from lawmakers and regulators due to the tax loophole it allegedly intends to exploit. D.E. Shaw & Co, founded by billionaire David E. Shaw, more than doubled its stake in the company to nearly 10.4 million shares during the third quarter.

#1 Allergan PLC (NYSE:AGN)

Billionaires with Long Positions (as of September 30): 26

Aggregate Value of Billionaires’ Holdings (as of September30): $10.8 Billion

Finally, since it has been a hot favorite among billionaire investors for the past few quarters, it’s not a surprise that Allergan PLC (NYSE:AGN) was the favorite healthcare of billionaire investors at the end of third quarter. However, the actual surprise lies in the fact that Allergan PLC (NYSE:AGN) continued to gain popularity among billionaire investors in a quarter when its stock suffered a more than 10% drop. Between the start and end of the third quarter, the number of billionaire investors tracked by us with ownership in the company jumped by 2 and the aggregate value of their holdings also saw a meager jump of $14 million. Owing largely to the rumors of the Pfizer deal that started doing rounds in late-November, the stock of Allergan PLC has climbed up significantly since then and currently trades with year-to-date gains of 23.33%. On December 2 analysts at Leerink Swann reiterated their ‘Outperform’ rating on the stock, while upping its price target to $393 from $355. Richard Gerson and Navroz D. Udwadia‘s Falcon Edge Capital was one of the hedge funds that increased its stake in the company during the third quarter; it held 592,542 shares of Allergan PLC, as of September 30.

Disclosure: None