Since the beginning of 2016, the healthcare sector has been one of the worst performing and is down by almost 8.80% year-to-date, outperforming only the financial sector that has registered declines of 9.90%. Nevertheless, smart money investors like healthcare stocks for their long-term growth and the over the past year the sector has also registered a wave of M&A activity, which is another reason for investing in healthcare companies. With the latest round of 13F filings completed, we have analyzed the equity portfolios of around 730 hedge funds and other institutional investors, whose activity we track as part of our small-cap strategy (see more details here). Aside from picking the stocks for our strategy, we can also see the collective sentiment among the funds from our database towards different stocks. Therefore, in this article, we are going to take a look at the top five healthcare stocks that the funds we track were bullish on heading into the first quarter of 2016.
Let’s start with Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), which ranked on the fifth spot after it had registered a substantial increase in popularity during the last quarter of 2015. At the end of December, 81 funds reported long positions in Teva, worth $9.74 billion in aggregate, up from 70 funds holding $6.80 billion worth of stock a quarter earlier. In this way, the investors from our database amassed over 17% of the company’s stock at the end of last year. Year-to-date, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s shares have slid by more than 15%, but investors have something to look forward to in the long run, since the company is currently in the process of acquiring Allergan’s generic drugs business, following which Teva will become the largest manufacturer of generic drugs in the world. At the same time, at 9 times forward earnings, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s stock looks attractive and analysts seem to have the same view, since most outlets that cover the stock have set bullish ratings. Among the funds in our database, billionaire Andreas Halvorsen‘s Viking Global is the largest shareholder of Teva, owning 25.04 million shares.
Then there is Valeant Pharmaceuticals Intl Inc (NYSE:VRX), a company that caused a lot of pain to many top investors that rank among its shareholders. During the fourth quarter, the number of funds with long positions in Valeant slid to 83 from 88 and the aggregate value of their positions dropped to $12.56 billion from $17.73 billion and represented 36.20% of the company at the end of December. The stock has slumped by more than 58% since the end of September, amid a series of events involving the company’s drug-pricing policies, financials, and management changes, among others. Recently, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has announced the return of its CEO Michael Pearson from medical leave and said it would delay filing its latest financial statements, alongside having withdrawn its guidance. However, top investors in the company, such as Bill Ackman of Pershing Square, consider that the market has overreacted to the recent problems surrounding Valeant and the stock is likely to rebound since the company’s core business remains strong. Pershing Square holds 16.59 million shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) as of the end of December, which makes it one of the largest shareholders of the company.
The biotech has been the most affected among the industries in the healthcare sector since the beginning of 2016 and Gilead Sciences, Inc. (NASDAQ:GILD) is no exception as its stock has dropped by 13%. However, among the funds in our database, the number of investors long the stock inched down by one to 89, while the aggregate value of their holdings fell to $4.51 billion from $4.76 billion during the last three months of 2015. Among others, billionaire David E. Shaw‘s D. E. Shaw reported holding 4.52 million shares of Gilead Sciences, Inc. (NASDAQ:GILD) in its latest 13F filing (down by 27% on the quarter), while Samuel Isaly’s OrbiMed Advisors raised its exposure by 57% to 3.42 million shares. Gilead remains to be one of the top biotech picks among both investors and analysts, mainly due to its leading hepatitis C drugs Harvoni and Sovaldi, but the competition from other producers is catching up. However, Gilead Sciences, Inc. (NASDAQ:GILD) has other products in its pipeline, such as its experimental cocktail of emtricitabine and tenofovir alafenamide for the treatment of HIV, which has recently received a positive opinion from the European Medicines Agency and is awaiting approval from the US FDA.
Pfizer Inc. (NYSE:PFE) ranked as the second most-popular healthcare stock among the funds we track, as the number of funds bullish on the company surged to 109 from 97 during the October-December period. Additionally, the aggregate value of these funds’ positions went up to $8.62 billion from $6.09 billion and represented 4.30% of Pfizer’s outstanding stock at the end of December. In this way, Pfizer Inc. (NYSE:PFE) is trailing only Allergan, the company it is in the process of acquiring in a deal worth $160 billion. Pfizer plans to relocate its headquarters to Dublin following the acquisition of Allergan, which would allow it to save around $35 billion in taxes, as estimated by Americans for Tax Fairness group. The move sparked a lot of discussions regarding inversion deals, but investors are looking forward to the merger as it will create one of the leading drug manufacturers in the world and will create considerable synergies for both companies. Among the funds in our database, billionaire Ken Fisher‘s Fisher Asset Management is the largest shareholder of Pfizer Inc. (NYSE:PFE), owning 32.33 million shares as of the end of 2015.
Finally, Allergan plc Ordinary Shares (NYSE:AGN) ranked as the most popular healthcare stock among the funds we track, and the top pick overall, with 159 funds holding $22.24 billion worth of stock at the end of December, compared to 151 funds owning $2.05 billion worth of stock a quarter earlier. In this way, the funds from our database amassed 18.10% of Allergan plc Ordinary Shares (NYSE:AGN)’s outstanding stock heading into 2016, while the largest position was held by Viking Global, which reported 5.98 million shares in its last 13F filing. Allergan plc Ordinary Shares (NYSE:AGN)’s stock has inched down by 8% since the beginning of the year and is currently trading at a significant discount to Pfizer’s bid of $333.24 per share. This development created some uncertainty around the merger, but representatives of both companies have assured that the deal is on track and the main concern is whether or not the US government will let the deal go through, since it would allow Pfizer to slash its tax bill, as stated earlier.
Disclosure: none
