We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
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 Bausch Health Companies Inc. (NYSE:BHC) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Bausch Health Companies Inc. (NYSE:BHC) an exceptional investment now? Investors who are in the know are in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that BHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 Paulson of Paulson & Co
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the recent hedge fund action encompassing Bausch Health Companies Inc. (NYSE:BHC).
What does smart money think about Bausch Health Companies Inc. (NYSE:BHC)?
Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in BHC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Paulson & Co held the most valuable stake in Bausch Health Companies Inc. (NYSE:BHC), which was worth $623.5 million at the end of the third quarter. On the second spot was ValueAct Capital which amassed $536.5 million worth of shares. Glenview Capital, Renaissance Technologies, and GoldenTree Asset Management 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 GoldenTree Asset Management allocated the biggest weight to Bausch Health Companies Inc. (NYSE:BHC), around 31.97% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, setting aside 13.46 percent of its 13F equity portfolio to BHC.
Since Bausch Health Companies Inc. (NYSE:BHC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that slashed their full holdings by the end of the third quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the largest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $48.1 million in stock. Francis Chou’s fund, Chou Associates Management, also dumped its stock, about $36 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Bausch Health Companies Inc. (NYSE:BHC). These stocks are Weibo Corp (NASDAQ:WB), Pinterest, Inc. (NYSE:PINS), NiSource Inc. (NYSE:NI), and Trimble Inc. (NASDAQ:TRMB). This group of stocks’ market caps are closest to BHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WB | 11 | 355355 | -4 |
| PINS | 37 | 513512 | 4 |
| NI | 28 | 726734 | 2 |
| TRMB | 30 | 649207 | 2 |
| Average | 26.5 | 561202 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $2822 million in BHC’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 11 bullish hedge fund positions. Bausch Health Companies Inc. (NYSE:BHC) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately BHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BHC were disappointed as the stock returned -50% 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
