At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Bausch Health Companies Inc. (NYSE:BHC) a good investment right now? Hedge funds are taking an optimistic view. The number of long hedge fund positions increased by 7 lately. Our calculations also showed that BHC isn’t among the 30 most popular stocks among hedge funds. BHC was in 30 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with BHC holdings at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a gander at the key hedge fund action encompassing Bausch Health Companies Inc. (NYSE:BHC).
Hedge fund activity in Bausch Health Companies Inc. (NYSE:BHC)
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the second quarter of 2018. On the other hand, there were a total of 31 hedge funds with a bullish position in BHC at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Paulson & Co held the most valuable stake in Bausch Health Companies Inc. (NYSE:BHC), which was worth $534.9 million at the end of the third quarter. On the second spot was ValueAct Capital which amassed $462.9 million worth of shares. Moreover, Glenview Capital, GoldenTree Asset Management, and Arrowstreet Capital were also bullish on Bausch Health Companies Inc. (NYSE:BHC), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Glenview Capital, managed by Larry Robbins, initiated the most valuable position in Bausch Health Companies Inc. (NYSE:BHC). Glenview Capital had $90.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $59.8 million position during the quarter. The other funds with brand new BHC positions are Samuel Isaly’s OrbiMed Advisors, Steven Tananbaum’s GoldenTree Asset Management, and Anand Parekh’s Alyeska Investment Group.
Let’s check out hedge fund activity in other stocks similar to Bausch Health Companies Inc. (NYSE:BHC). We will take a look at Momo Inc (NASDAQ:MOMO), Zillow Group Inc (NASDAQ:Z), BorgWarner Inc. (NYSE:BWA), and iShares MSCI ACWI ETF (NASDAQ:ACWI). This group of stocks’ market caps match BHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MOMO | 45 | 1293399 | 14 |
| Z | 22 | 755335 | -14 |
| BWA | 22 | 724710 | -2 |
| ACWI | 8 | 119261 | 0 |
| Average | 24.25 | 723176 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $1.58 billion in BHC’s case. Momo Inc (NASDAQ:MOMO) is the most popular stock in this table. On the other hand iShares MSCI ACWI ETF (NASDAQ:ACWI) is the least popular one with only 8 bullish hedge fund positions. Bausch Health Companies Inc. (NYSE:BHC) 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. In this regard MOMO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
