Is ALC Stock A Buy or Sell?

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 Alcon Inc. (NYSE:ALC).

Is ALC stock a buy? The best stock pickers were in a pessimistic mood. The number of long hedge fund positions shrunk by 2 lately. Alcon Inc. (NYSE:ALC) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 26. Our calculations also showed that ALC isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Roberto Mignone of Bridger Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a glance at the key hedge fund action regarding Alcon Inc. (NYSE:ALC).

Do Hedge Funds Think ALC Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in ALC 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, Ako Capital was the largest shareholder of Alcon Inc. (NYSE:ALC), with a stake worth $293.9 million reported as of the end of December. Trailing Ako Capital was Sirios Capital Management, which amassed a stake valued at $57.1 million. Bridger Management, Soros Fund Management, and Arrowstreet Capital 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 Sirios Capital Management allocated the biggest weight to Alcon Inc. (NYSE:ALC), around 4.44% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, designating 4.14 percent of its 13F equity portfolio to ALC.

Because Alcon Inc. (NYSE:ALC) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that elected to cut their full holdings by the end of the fourth quarter. Intriguingly, Israel Englander’s Millennium Management cut the largest investment of the 750 funds followed by Insider Monkey, valued at close to $28.6 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $16.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Alcon Inc. (NYSE:ALC) but similarly valued. We will take a look at Tencent Music Entertainment Group (NYSE:TME), Wipro Limited (NYSE:WIT), Zimmer Biomet Holdings Inc (NYSE:ZBH), Marvell Technology Group Ltd. (NASDAQ:MRVL), HP Inc. (NYSE:HPQ), The Hershey Company (NYSE:HSY), and Orange SA (NYSE:ORAN). This group of stocks’ market values match ALC’s market value.

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As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $798 million. That figure was $654 million in ALC’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Alcon Inc. (NYSE:ALC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALC is 51.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on ALC, though not to the same extent, as the stock returned 11.8% since the end of Q4 (through April 19th) and outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.