Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Elanco Animal Health Incorporated (NYSE:ELAN)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Elanco Animal Health Incorporated (NYSE:ELAN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ELAN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare ELAN to other stocks including Wix.Com Ltd (NASDAQ:WIX), ON Semiconductor Corporation (NASDAQ:ON), and Markel Corporation (NYSE:MKL) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a glance at the latest hedge fund action surrounding Elanco Animal Health Incorporated (NYSE:ELAN).
Do Hedge Funds Think ELAN Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. By comparison, 30 hedge funds held shares or bullish call options in ELAN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sachem Head Capital held the most valuable stake in Elanco Animal Health Incorporated (NYSE:ELAN), which was worth $965.6 million at the end of the second quarter. On the second spot was Starboard Value LP which amassed $263.9 million worth of shares. Dendur Capital, Senator Investment Group, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to Elanco Animal Health Incorporated (NYSE:ELAN), around 25.01% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, earmarking 18.27 percent of its 13F equity portfolio to ELAN.
Due to the fact that Elanco Animal Health Incorporated (NYSE:ELAN) has faced falling interest from hedge fund managers, it’s safe to say that there were a few money managers who were dropping their full holdings heading into Q3. It’s worth mentioning that Lee Ainslie’s Maverick Capital cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $50.6 million in stock. Andrew Kurita’s fund, Kettle Hill Capital Management, also dropped its stock, about $14.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Elanco Animal Health Incorporated (NYSE:ELAN). These stocks are Wix.Com Ltd (NASDAQ:WIX), ON Semiconductor Corporation (NASDAQ:ON), Markel Corporation (NYSE:MKL), TAL Education Group (NYSE:TAL), WPP Plc (NASDAQ:WPP), PPD, Inc. (NASDAQ:PPD), and Franklin Resources, Inc. (NYSE:BEN). This group of stocks’ market values resemble ELAN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WIX | 35 | 1381019 | -5 |
| ON | 44 | 1021403 | 3 |
| MKL | 33 | 709075 | 3 |
| TAL | 27 | 606671 | -11 |
| WPP | 6 | 23931 | 1 |
| PPD | 37 | 1910889 | 8 |
| BEN | 30 | 205166 | -1 |
| Average | 30.3 | 836879 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $837 million. That figure was $1997 million in ELAN’s case. ON Semiconductor Corporation (NASDAQ:ON) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 6 bullish hedge fund positions. Elanco Animal Health Incorporated (NYSE:ELAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ELAN is 81.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately ELAN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ELAN were disappointed as the stock returned -7.5% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Elanco Animal Health Inc (NYSE:ELAN)
Follow Elanco Animal Health Inc (NYSE:ELAN)
Suggested Articles:
- 10 Best Fashion and Apparel Stock to Invest In
- 20 Best Stocks To Buy RIght Now
- Barry Rosenstein and Jana Partners’ Top Stock Picks
Disclosure: None. This article was originally published at Insider Monkey.
