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 Gilead Sciences, Inc. (NASDAQ:GILD).
Is Gilead Sciences, Inc. (NASDAQ:GILD) undervalued? Hedge funds are in an optimistic mood. The number of long hedge fund bets advanced by 1 in recent months. Our calculations also showed that GILD 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.
Jim Simons of Renaissance Technologies
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. With all of this in mind let’s take a glance at the fresh hedge fund action surrounding Gilead Sciences, Inc. (NASDAQ:GILD).
What does smart money think about Gilead Sciences, Inc. (NASDAQ:GILD)?
At the end of the foruth quarter, a total of 67 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. By comparison, 57 hedge funds held shares or bullish call options in GILD a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Gilead Sciences, Inc. (NASDAQ:GILD) was held by Renaissance Technologies, which reported holding $1102.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $464.5 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Partner Fund Management. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Gilead Sciences, Inc. (NASDAQ:GILD), around 13.39% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, earmarking 9.36 percent of its 13F equity portfolio to GILD.
As industrywide interest jumped, key hedge funds have jumped into Gilead Sciences, Inc. (NASDAQ:GILD) headfirst. Camber Capital Management, managed by Stephen DuBois, initiated the most outsized position in Gilead Sciences, Inc. (NASDAQ:GILD). Camber Capital Management had $97.5 million invested in the company at the end of the quarter. Michael Rockefeller and Karl Kroeker’s Woodline Partners also initiated a $55.1 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Michael Castor’s Sio Capital, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s check out hedge fund activity in other stocks similar to Gilead Sciences, Inc. (NASDAQ:GILD). These stocks are Caterpillar Inc. (NYSE:CAT), Goldman Sachs Group, Inc. (NYSE:GS), Enbridge Inc (NYSE:ENB), and Mondelez International Inc (NASDAQ:MDLZ). This group of stocks’ market values match GILD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAT | 52 | 3227642 | 13 |
| GS | 75 | 7581397 | -3 |
| ENB | 21 | 285809 | 1 |
| MDLZ | 50 | 2343152 | -6 |
| Average | 49.5 | 3359500 | 1.25 |
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 $3360 million. That figure was $3723 million in GILD’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 21 bullish hedge fund positions. Gilead Sciences, Inc. (NASDAQ:GILD) is not the most popular stock in this group but hedge fund interest is still above average. 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 also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Hedge funds were also right about betting on GILD as the stock returned 16% during the first quarter (through March 2nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
