Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Allergan, Inc. (NYSE:AGN) from the perspective of those elite funds.
Is Allergan, Inc. (NYSE:AGN) an outstanding stock to buy now? At the margin hedge fund sentiment is neutral but overall the smart money is extremely bullish. The number of long hedge fund bets stayed the same which is generally a negative development if the stock isn’t among the most popular. AGN was in 151 hedge funds’ portfolio at the end of the third quarter of 2015 and it was the top stock. There were 151 hedge funds in our database with AGN holdings at the end of the previous quarter.
We have heard from several hedge funds in recent months that Allergan is an excellent takeover candidate. Some hedge funds have been urging the company to acquire other larger drug companies to take advantage of its lower tax rates. Today’s news indicate that it is likely to be acquired by Pfizer.
Now, let’s go over the new action surrounding Allergan, Inc. (NYSE:AGN).
How have hedgies been trading Allergan, Inc. (NYSE:AGN)?
Heading into Q4, a total of 151 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of 0% from the second quarter. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings significantly.
Andreas Halvorsen’s Viking Global had the number one position in Allergan, Inc. (NYSE:AGN), worth close to $1.96 billion, accounting for 7.5% of its total 13F portfolio. Sitting at the No. 2 spot is Paulson & Co, managed by John Paulson, which held a $1.95 billion position; the fund has 10.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Daniel S. Och’s OZ Management, Dan Loeb’s Third Point and Stephen Mandel’s Lone Pine Capital.
Not everyone was extremely bullish on the stock. There were a few hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Richard Barrera’s Roystone Capital Partners dropped the largest investment of all the hedgies watched by Insider Monkey, totaling close to $144.8 million in stock, and John Burbank of Passport Capital was right behind this move, as the fund cut about $75.8 million position. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same.
Let’s check out hedge fund activity in other stocks similar to Allergan, Inc. (NYSE:AGN). These stocks are Altria Group Inc (NYSE:MO), Amgen, Inc. (NASDAQ:AMGN), British American Tobacco PLC (ADR) (NYSEAMEX:BTI), and TOTAL S.A. (ADR) (NYSE:TOT). All of these stocks’ market caps are similar to AGN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions | Change in HF Position |
|---|---|---|---|
| MO | 41 | 1626592 | -2 |
| AMGN | 73 | 4466393 | 5 |
| BTI | 15 | 398589 | 1 |
| TOT | 16 | 57115 | 1 |
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks were $1637 million. These numbers are much smaller than Allergan’s numbers and display the overwhelmingly bullish hedge fund sentiment towards Allergan. However, this doesn’t mean that Allergan is a slam dunk investment. It is a good idea to take a closer look at this stock and decide yourself whether to follow the footsteps of hedge funds.
