Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Walgreens Boots Alliance Inc (NASDAQ:WBA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Walgreens Boots Alliance Inc (NASDAQ:WBA) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Air Products & Chemicals, Inc. (NYSE:APD), Vodafone Group Plc (NASDAQ:VOD), and Intercontinental Exchange Inc (NYSE:ICE) to gather more data points. Our calculations also showed that WBA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to go over the fresh hedge fund action surrounding Walgreens Boots Alliance Inc (NASDAQ:WBA).
What have hedge funds been doing with Walgreens Boots Alliance Inc (NASDAQ:WBA)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WBA over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the most valuable position in Walgreens Boots Alliance Inc (NASDAQ:WBA). Two Sigma Advisors has a $212.6 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Markel Gayner Asset Management, led by Tom Gayner, holding a $121.3 million position; 1.7% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions consist of Phill Gross and Robert Atchinson’s Adage Capital Management, D. E. Shaw’s D E Shaw and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position JNE Partners allocated the biggest weight to Walgreens Boots Alliance Inc (NASDAQ:WBA), around 19.28% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, earmarking 6.36 percent of its 13F equity portfolio to WBA.
Judging by the fact that Walgreens Boots Alliance Inc (NASDAQ:WBA) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest stake of the 750 funds watched by Insider Monkey, worth close to $97.6 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund sold off about $46.7 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Walgreens Boots Alliance Inc (NASDAQ:WBA). These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Vodafone Group Plc (NASDAQ:VOD), Intercontinental Exchange Inc (NYSE:ICE), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market values resemble WBA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APD | 54 | 736586 | 13 |
| VOD | 16 | 758597 | -4 |
| ICE | 52 | 2712531 | 3 |
| JD | 63 | 6041314 | 3 |
| Average | 46.25 | 2562257 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $2562 million. That figure was $694 million in WBA’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 16 bullish hedge fund positions. Walgreens Boots Alliance Inc (NASDAQ:WBA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately WBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WBA investors were disappointed as the stock returned -21.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
