Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Teva Pharmaceutical Industries Limited (NYSE:TEVA).
Teva Pharmaceutical Industries Limited (NYSE:TEVA) investors should be aware of a decrease in support from the world’s most elite money managers of late. TEVA was in 23 hedge funds’ portfolios at the end of December. There were 24 hedge funds in our database with TEVA positions at the end of the previous quarter. Our calculations also showed that TEVA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Warren Buffett of Berkshire Hathaway
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 check out the latest hedge fund action regarding Teva Pharmaceutical Industries Limited (NYSE:TEVA).
How have hedgies been trading Teva Pharmaceutical Industries Limited (NYSE:TEVA)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in TEVA over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Teva Pharmaceutical Industries Limited (NYSE:TEVA) was held by Berkshire Hathaway, which reported holding $423.8 million worth of stock at the end of September. It was followed by Abrams Capital Management with a $235.7 million position. Other investors bullish on the company included Miller Value Partners, Citadel Investment Group, and LMR Partners. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Teva Pharmaceutical Industries Limited (NYSE:TEVA), around 7.32% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, setting aside 3.42 percent of its 13F equity portfolio to TEVA.
Seeing as Teva Pharmaceutical Industries Limited (NYSE:TEVA) has experienced a decline in interest from hedge fund managers, logic holds that there exists a select few hedgies that decided to sell off their positions entirely last quarter. Intriguingly, Kenneth Tropin’s Graham Capital Management cut the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $15 million in stock. Alec Litowitz and Ross Laser’s fund, Magnetar Capital, also dumped its stock, about $3.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Teva Pharmaceutical Industries Limited (NYSE:TEVA). These stocks are Liberty Media Corporation (NASDAQ:FWONK), Banco de Chile (NYSE:BCH), Packaging Corporation Of America (NYSE:PKG), and C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW). This group of stocks’ market values resemble TEVA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FWONK | 37 | 2062554 | 6 |
| BCH | 10 | 53547 | 6 |
| PKG | 18 | 113206 | 1 |
| CHRW | 24 | 414912 | -2 |
| Average | 22.25 | 661055 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $661 million. That figure was $944 million in TEVA’s case. Liberty Media Corporation (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 10 bullish hedge fund positions. Teva Pharmaceutical Industries Limited (NYSE:TEVA) 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 TEVA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TEVA were disappointed as the stock returned -27% 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.
Disclosure: None. This article was originally published at Insider Monkey.
