We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Gilead Sciences, Inc. (NASDAQ:GILD).
Is Gilead Sciences, Inc. (NASDAQ:GILD) a splendid stock to buy now? The best stock pickers were becoming less confident. The number of long hedge fund positions went down by 11 in recent months. Gilead Sciences, Inc. (NASDAQ:GILD) was in 54 hedge funds’ portfolios at the end of June. The all time high for this statistic is 93. Our calculations also showed that GILD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 65 hedge funds in our database with GILD holdings at the end of March.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.
Alex Denner of Sarissa Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now let’s go over the recent hedge fund action surrounding Gilead Sciences, Inc. (NASDAQ:GILD).
Do Hedge Funds Think GILD Is A Good Stock To Buy Now?
At second quarter’s end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. By comparison, 68 hedge funds held shares or bullish call options in GILD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Gilead Sciences, Inc. (NASDAQ:GILD), with a stake worth $347.6 million reported as of the end of June. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $204.8 million. Diamond Hill Capital, Sarissa Capital Management, and Ariel Investments 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 Sarissa Capital Management allocated the biggest weight to Gilead Sciences, Inc. (NASDAQ:GILD), around 14.77% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 10.29 percent of its 13F equity portfolio to GILD.
Seeing as Gilead Sciences, Inc. (NASDAQ:GILD) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of fund managers who were dropping their entire stakes by the end of the second quarter. Interestingly, Brandon Haley’s Holocene Advisors dropped the largest position of all the hedgies followed by Insider Monkey, worth close to $131.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $117.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 11 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Gilead Sciences, Inc. (NASDAQ:GILD) but similarly valued. We will take a look at General Motors Company (NYSE:GM), U.S. Bancorp (NYSE:USB), Automatic Data Processing, Inc. (NASDAQ:ADP), Crown Castle International Corp. (REIT) (NYSE:CCI), ConocoPhillips (NYSE:COP), The TJX Companies, Inc. (NYSE:TJX), and Cigna Corporation (NYSE:CI). This group of stocks’ market caps are similar to GILD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GM | 86 | 7414862 | 0 |
| USB | 41 | 8305634 | -2 |
| ADP | 41 | 3018791 | -1 |
| CCI | 42 | 2093903 | -1 |
| COP | 50 | 1158596 | -1 |
| TJX | 56 | 2387336 | -7 |
| CI | 63 | 2807451 | 10 |
| Average | 54.1 | 3883796 | -0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.1 hedge funds with bullish positions and the average amount invested in these stocks was $3884 million. That figure was $1733 million in GILD’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 41 bullish hedge fund positions. Gilead Sciences, Inc. (NASDAQ:GILD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GILD is 25.9. 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 negative signal and 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 surpassed the market again by 5.6 percentage points. Unfortunately GILD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); GILD investors were disappointed as the stock returned 0.6% 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 most of these stocks already outperformed the market in 2021.
Follow Gilead Sciences Inc. (NASDAQ:GILD)
Follow Gilead Sciences Inc. (NASDAQ:GILD)
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Disclosure: None. This article was originally published at Insider Monkey.
