Here is What Hedge Funds Think About Merck & Co., Inc. (MRK)

At Insider Monkey we follow almost 800 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Is Merck & Co., Inc. (NYSE:MRK) a healthy stock for your portfolio? The best stock pickers are buying. The number of bullish hedge fund positions moved up by eight recently. MRK was in 70 hedge funds’ portfolios at the end of December. There were 62 hedge funds in our database with MRK positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Gilead Sciences, Inc. (NASDAQ:GILD), PepsiCo, Inc. (NYSE:PEP), and Comcast Corporation (NASDAQ:CMCSA) to gather more data points.

In the eyes of most investors, hedge funds are perceived as slow, outdated financial vehicles of the past. While there are greater than 8000 funds trading at the moment, Our researchers look at the upper echelon of this club, about 700 funds. It is estimated that this group of investors manage most of the hedge fund industry’s total capital, and by tracking their first-class stock picks, Insider Monkey has formulated various investment strategies that have historically exceeded the market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Before we get to discussing the smart money moves surrounding Merck, let’s take a look at the latest developments surrounding the company.

Merck’s stock has declined by more than 8% over the last 52 weeks. The decline comes alongside a drop that affected the overall healthcare sector. The company managed to beat the earnings estimate for the past several quarters in a row and is currently planning to enter the Hepatitis C market, which is currently dominated by Gilead Sciences.

Recently the FDA has approved Zepatier for the treatment of chronic Hepatitis C, which will compete in a market 90% dominated by Gilead’s Harvoni and Sovaldi. The price for a 12-week course of Zepatier is estimated at $54,000, which is well below the $94,500 and $84,000 that Harvoni and Sovaldi currently sell at, respectively. The approval got the market excited with analysts anticipating Merck to generate around $2.0 billion in sales by 2020, even if Merck captures a small portion of the hep C market.

Keeping this in mind, we’re going to take a glance at the recent action surrounding Merck & Co., Inc. (NYSE:MRK).

What does the smart money think about Merck & Co., Inc. (NYSE:MRK)?

At Q4’s end, a total of 70 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the number one position in Merck & Co., Inc. (NYSE:MRK), worth close to $360.3 million, comprising 0.7% of its total 13F portfolio. Coming in second is Orbis Investment Management, led by William B. Gray, holding a $250.5 million position; 2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish contain Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Now, key hedge funds were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, established the most valuable position in Merck & Co., Inc. (NYSE:MRK). Alyeska Investment Group had $75.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $15.8 million position during the quarter. The other funds with brand new MRK positions are Dmitry Balyasny’s Balyasny Asset Management, Arthur B Cohen and Joseph Healey’s Healthcor Management LP, and Malcolm Fairbairn’s Ascend Capital.

Let’s go over hedge fund activity in other stocks similar to Merck & Co., Inc. (NYSE:MRK). These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), PepsiCo, Inc. (NYSE:PEP), Comcast Corporation (NASDAQ:CMCSA), and Medtronic, Inc. (NYSE:MDT). All of these stocks’ market caps are similar to MRK’s market cap.

As you can see these stocks had an average of 72 hedge funds with bullish positions and the average amount invested in these stocks was $5.53 billion. That figure was $2.55 billion in MRK’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand Medtronic, Inc. (NYSE:MDT) is the least popular one with only 57 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GILD might be a better candidate to consider a long position.

Disclosure: none