Forest Laboratories, Inc. (FRX): Are Hedge Funds Right About This Stock?

Forest Laboratories, Inc. (NYSE:FRX) was in 35 hedge funds’ portfolio at the end of March. FRX investors should pay attention to an increase in enthusiasm from smart money lately. There were 30 hedge funds in our database with FRX holdings at the end of the previous quarter.

To most stock holders, hedge funds are viewed as underperforming, outdated financial tools of the past. While there are greater than 8000 funds in operation at the moment, we at Insider Monkey hone in on the upper echelon of this club, close to 450 funds. It is widely believed that this group oversees the majority of all hedge funds’ total capital, and by watching their highest performing picks, we have found a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum 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 trumped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as important, bullish insider trading activity is a second way to break down the financial markets. As the old adage goes: there are many reasons for a bullish insider to sell shares of his or her company, but only one, very obvious reason why they would behave bullishly. Many empirical studies have demonstrated the impressive potential of this strategy if investors know where to look (learn more here).

Now, it’s important to take a peek at the recent action regarding Forest Laboratories, Inc. (NYSE:FRX).

What have hedge funds been doing with Forest Laboratories, Inc. (NYSE:FRX)?

In preparation for this quarter, a total of 35 of the hedge funds we track held long positions in this stock, a change of 17% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly.

Of the funds we track, Icahn Capital LP, managed by Carl Icahn, holds the largest position in Forest Laboratories, Inc. (NYSE:FRX). Icahn Capital LP has a $1.1664 billion position in the stock, comprising 6.9% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which held a $121.8 million position; 1% of its 13F portfolio is allocated to the company. Other hedgies with similar optimism include Sean Cullinan’s Point State Capital, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

As aggregate interest increased, some big names have jumped into Forest Laboratories, Inc. (NYSE:FRX) headfirst. Apex Capital, managed by Sanford J. Colen, assembled the biggest position in Forest Laboratories, Inc. (NYSE:FRX). Apex Capital had 19 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $16.3 million position during the quarter. The other funds with brand new FRX positions are Louis Bacon’s Moore Global Investments, Michael Novogratz’s Fortress Investment Group, and Michael Novogratz’s Fortress Investment Group.

What do corporate executives and insiders think about Forest Laboratories, Inc. (NYSE:FRX)?

Insider purchases made by high-level executives is most useful when the company in focus has experienced transactions within the past half-year. Over the latest six-month time frame, Forest Laboratories, Inc. (NYSE:FRX) has seen zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Forest Laboratories, Inc. (NYSE:FRX). These stocks are Allergan, Inc. (NYSE:AGN), Warner Chilcott Plc (NASDAQ:WCRX), Endo Health Solutions Inc (NASDAQ:ENDP), Dr. Reddy’s Laboratories Limited (ADR) (NYSE:RDY), and Pharmacyclics, Inc. (NASDAQ:PCYC). All of these stocks are in the drug manufacturers – other industry and their market caps match FRX’s market cap.

With the returns demonstrated by our strategies, retail investors must always monitor hedge fund and insider trading activity, and Forest Laboratories, Inc. (NYSE:FRX) shareholders fit into this picture quite nicely.

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