Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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.
How do we determine whether Boston Scientific Corporation (NYSE:BSX) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Boston Scientific Corporation (NYSE:BSX) has experienced an increase in enthusiasm from smart money in recent months. BSX was in 54 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 52 hedge funds in our database with BSX holdings at the end of the previous quarter. Our calculations also showed that BSX 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.
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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Andreas Halvorsen of Viking Global
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. Now we’re going to take a gander at the latest hedge fund action surrounding Boston Scientific Corporation (NYSE:BSX).
Hedge fund activity in Boston Scientific Corporation (NYSE:BSX)
Heading into the first quarter of 2020, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in BSX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of Boston Scientific Corporation (NYSE:BSX), with a stake worth $836.2 million reported as of the end of September. Trailing Viking Global was Marshall Wace LLP, which amassed a stake valued at $369.5 million. Citadel Investment Group, Third Point, and OrbiMed Advisors 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 Iron Triangle Partners allocated the biggest weight to Boston Scientific Corporation (NYSE:BSX), around 8.87% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 7.4 percent of its 13F equity portfolio to BSX.
Now, key money managers were breaking ground themselves. Redmile Group, managed by Jeremy Green, created the biggest position in Boston Scientific Corporation (NYSE:BSX). Redmile Group had $73.8 million invested in the company at the end of the quarter. Jacob Doft’s Highline Capital Management also made a $46.7 million investment in the stock during the quarter. The following funds were also among the new BSX investors: Michael Rockefeller and Karl Kroeker’s Woodline Partners, Kevin Molloy’s Iron Triangle Partners, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Boston Scientific Corporation (NYSE:BSX) but similarly valued. These stocks are Allergan plc (NYSE:AGN), VMware, Inc. (NYSE:VMW), Takeda Pharmaceutical Company Limited (NYSE:TAK), and Enterprise Products Partners L.P. (NYSE:EPD). This group of stocks’ market caps match BSX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGN | 86 | 9927657 | 2 |
| VMW | 33 | 777041 | -4 |
| TAK | 28 | 1186486 | -3 |
| EPD | 28 | 340248 | 4 |
| Average | 43.75 | 3057858 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $3058 million. That figure was $3208 million in BSX’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 28 bullish hedge fund positions. Boston Scientific Corporation (NYSE:BSX) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately BSX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BSX were disappointed as the stock returned -24.6% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
