We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of bluebird bio Inc (NASDAQ:BLUE).
Is bluebird bio Inc (NASDAQ:BLUE) an excellent stock to buy now? The best stock pickers are becoming more confident. The number of long hedge fund positions moved up by 16 recently. Our calculations also showed that BLUE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BLUE was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 17 hedge funds in our database with BLUE positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Arthur B Cohen and Joseph Healey of Healthcor Management LP
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a gander at the key hedge fund action surrounding bluebird bio Inc (NASDAQ:BLUE).
What have hedge funds been doing with bluebird bio Inc (NASDAQ:BLUE)?
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 94% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in BLUE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Casdin Capital was the largest shareholder of bluebird bio Inc (NASDAQ:BLUE), with a stake worth $85.1 million reported as of the end of September. Trailing Casdin Capital was Citadel Investment Group, which amassed a stake valued at $69.6 million. Healthcor Management LP, Armistice Capital, and Adage Capital Management 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 Casdin Capital allocated the biggest weight to bluebird bio Inc (NASDAQ:BLUE), around 7.83% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 4.42 percent of its 13F equity portfolio to BLUE.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Armistice Capital, managed by Steven Boyd, established the biggest position in bluebird bio Inc (NASDAQ:BLUE). Armistice Capital had $29.5 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $25 million position during the quarter. The following funds were also among the new BLUE investors: Arsani William’s Logos Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Peter Muller’s PDT Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as bluebird bio Inc (NASDAQ:BLUE) but similarly valued. We will take a look at Emcor Group Inc (NYSE:EME), Graphic Packaging Holding Company (NYSE:GPK), Black Hills Corporation (NYSE:BKH), and Carter’s, Inc. (NYSE:CRI). All of these stocks’ market caps are similar to BLUE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EME | 29 | 238201 | 1 |
| GPK | 39 | 550850 | 3 |
| BKH | 24 | 200216 | 3 |
| CRI | 21 | 263204 | -4 |
| Average | 28.25 | 313118 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $369 million in BLUE’s case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Carter’s, Inc. (NYSE:CRI) is the least popular one with only 21 bullish hedge fund positions. bluebird bio Inc (NASDAQ:BLUE) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately BLUE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BLUE were disappointed as the stock returned -46.1% 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
