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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Taro Pharmaceutical Industries Ltd. (NYSE:TARO) based on that data.
Is Taro Pharmaceutical Industries Ltd. (NYSE:TARO) the right pick for your portfolio? The smart money is in a bullish mood. The number of long hedge fund bets advanced by 1 lately. Our calculations also showed that TARO 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).
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 was 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’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.
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. Keeping this in mind we’re going to take a glance at the fresh hedge fund action surrounding Taro Pharmaceutical Industries Ltd. (NYSE:TARO).
What does smart money think about Taro Pharmaceutical Industries Ltd. (NYSE:TARO)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in TARO a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Taro Pharmaceutical Industries Ltd. (NYSE:TARO), with a stake worth $54.2 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $8.1 million. Citadel Investment Group, Arrowstreet Capital, and Millennium 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 Algert Coldiron Investors allocated the biggest weight to Taro Pharmaceutical Industries Ltd. (NYSE:TARO), around 0.75% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to TARO.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, assembled the biggest position in Taro Pharmaceutical Industries Ltd. (NYSE:TARO). ExodusPoint Capital had $0.9 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.7 million position during the quarter. The only other fund with a new position in the stock is Kamran Moghtaderi’s Eversept Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Taro Pharmaceutical Industries Ltd. (NYSE:TARO). These stocks are Inphi Corporation (NYSE:IPHI), Watts Water Technologies Inc (NYSE:WTS), UMB Financial Corporation (NASDAQ:UMBF), and MyoKardia, Inc. (NASDAQ:MYOK). All of these stocks’ market caps are closest to TARO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPHI | 31 | 449813 | 0 |
| WTS | 19 | 309415 | -5 |
| UMBF | 19 | 81425 | 3 |
| MYOK | 26 | 933869 | 1 |
| Average | 23.75 | 443631 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $83 million in TARO’s case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand Watts Water Technologies Inc (NYSE:WTS) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is even less popular than WTS. Hedge funds dodged a bullet by taking a bearish stance towards TARO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately TARO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TARO investors were disappointed as the stock returned -32.1% 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 so far in Q1.
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.
