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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Edwards Lifesciences Corporation (NYSE:EW), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Edwards Lifesciences Corporation (NYSE:EW) a bargain? Prominent investors are becoming hopeful. The number of long hedge fund positions rose by 9 lately. Our calculations also showed that EW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). EW was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 36 hedge funds in our database with EW positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are a lot of methods market participants have at their disposal to analyze publicly traded companies. A pair of the most underrated methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best money managers can trounce their index-focused peers by a very impressive margin (see the details here).
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the recent hedge fund action regarding Edwards Lifesciences Corporation (NYSE:EW).
How are hedge funds trading Edwards Lifesciences Corporation (NYSE:EW)?
At the end of the fourth quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in EW a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Nicolai Tangen’s Ako Capital has the number one position in Edwards Lifesciences Corporation (NYSE:EW), worth close to $193.3 million, accounting for 4.2% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $164.3 million position; 0.2% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Ako Capital allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 4.16% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 2.71 percent of its 13F equity portfolio to EW.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Ako Capital, managed by Nicolai Tangen, created the biggest position in Edwards Lifesciences Corporation (NYSE:EW). Ako Capital had $193.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $127.3 million investment in the stock during the quarter. The following funds were also among the new EW investors: Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Matthew Tewksbury’s Stevens Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Edwards Lifesciences Corporation (NYSE:EW) but similarly valued. We will take a look at Humana Inc (NYSE:HUM), Waste Management, Inc. (NYSE:WM), Aon plc (NYSE:AON), and Kinder Morgan Inc (NYSE:KMI). All of these stocks’ market caps resemble EW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HUM | 75 | 4982047 | 10 |
| WM | 32 | 3261844 | -20 |
| AON | 51 | 2627235 | 6 |
| KMI | 40 | 1360313 | 2 |
| Average | 49.5 | 3057860 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.5 hedge funds with bullish positions and the average amount invested in these stocks was $3058 million. That figure was $1283 million in EW’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Edwards Lifesciences Corporation (NYSE:EW) 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. 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately EW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EW investors were disappointed as the stock returned -15.4% 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
