Is Mylan Inc. (MYL) Going to Burn These Hedge Funds?

Insider Monkey follows around 730 of the best-performing money managers and even though many of them lost money in the last several months, the history shows that they still manage to beat broader market benchmarks over the long run. This is the reason why it can be profitable for retail investors to imitate or at least examine their moves. Of course, even the best money managers get it wrong on some occasions, but following some of their picks offers investors a better chance of outperforming the crowd than picking a random stock and this is where our research comes in. Furthermore, equity strategists at Goldman Sachs also compiled a basket of stocks, called the Hedge Fund VIP list, that includes the 50 most-owned stocks among hedge fund firms. Goldman’s fresh data stipulates that the VIP basket of stocks outperformed the S&P 500 gauge on a quarterly basis 64% of the time since 2001 through the end of 2015. Having this in mind, the following article will focus on the hedge fund activity that surrounds Mylan Inc. (NASDAQ:MYL).

Is Mylan Inc. (NASDAQ:MYL) a sound stock to buy now? Hedge funds are selling. The number of bullish hedge fund positions shrunk by 14 in recent months. MYL was in 60 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 74 hedge funds in our database with MYL positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as VF Corp (NYSE:VFC), DISH Network Corp (NASDAQ:DISH), and Hewlett Packard Enterprise Co (NYSE:HPE) to gather more data points.

If you’d ask most investors, hedge funds are seen as underperforming, outdated investment tools of the past. While there are more than 8000 funds with their doors open at the moment, We choose to focus on the bigwigs of this group, about 700 funds. It is estimated that this group of investors oversee bulk of the hedge fund industry’s total asset base, and by tailing their unrivaled equity investments, Insider Monkey has identified a few investment strategies that have historically outrun the market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Mylan Inc. (NASDAQ:MYL) is a pharmaceutical company that develops and markets generic, branded generic and specialty pharmaceuticals. The shares of Mylan are down 23% over the past 52 weeks, partially because of negative sentiment in the industry due to allegations of price gouging around Valeant Pharmaceuticals Intl Inc. (NYSE:VRX). According to recent reports, the price of Mylan’s EpiPen Auto-Injector, used for the treatment of severe allergic reactions (anaphylaxis), increased from approximately $76 per package in 2001 to more than $500. Although Mylan did not face the same scrutiny as Valeant did, some investors might have become worried about the company’s pricing practices associated with EpiPen. It should be noted that EpiPen Auto-Injector generates a high portion of Mylan’s Specialty revenues, which totaled $1.24 billion in 2015. This is up from $1.22 billion in 2014 and $1.03 billion in 2013. The increase in Specialty revenues was mainly driven by higher volumes of the EpiPen, partially offset by lower pricing. There are two companies that are developing competing generic versions of Mylan Inc. (NASDAQ:MYL)’s EpiPen: Sanofi SA (ADR) (NYSE:SNY) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). Just recently, the U.S. FDA found some deficiencies in an application for an injector developed by Teva, so the launch of the company’s epinephrine injection is anticipated to be delayed until at least 2017. This is great news for Mylan, which makes us believe that the company will continue to achieve higher sales from its injector. Meanwhile, the market for this allergy-reaction injector continues to grow, as awareness of the risks of anaphylaxis increases.

Mylan Inc. (NASDAQ:MYL) reported consolidated total revenues of $9.43 billion for 2015, up from $7.72 billion delivered in 2014. The increase in the top-line figure was mainly driven by third party net sales growth in the company’s Generics business of 33%, which also included the impact from an acquisition. At the same time, the company’s revenues were negatively impacted foreign exchange headwinds, which had an estimated impact of approximately $430 million on the 2015 top-line figure. Constant currency total revenues grew 28% year-on-year. Mylan’s stock is priced at only 8.31-times expected earnings, significantly below the forward P/E multiple of 16.5 for the Drug Retail sector.

With all of this in mind, let’s go over the new action encompassing Mylan Inc. (NASDAQ:MYL).

What does the smart money think about Mylan Inc. (NASDAQ:MYL)?

At the end of the fourth quarter, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 19% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paulson & Co, managed by John Paulson, holds the largest position in Mylan Inc. (NASDAQ:MYL). Paulson & Co has a $1.23 billion position in the stock, comprising 7.4% of its 13F portfolio. On Paulson & Co’s heels is Sachem Head Capital, managed by Scott Ferguson, which holds a $181.1 million position; the fund has 5.7% of its 13F portfolio invested in the stock. The remaining members of the smart money with similar optimism include Samuel Isaly’s OrbiMed Advisors, Doug Silverman and Alexander Klabin’s Senator Investment Group and David Einhorn’s Greenlight Capital.

Due to the fact that Mylan Inc. (NASDAQ:MYL) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Keith Meister’s Corvex Capital sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $80.5 million in stock, and Rob Citrone’s Discovery Capital Management was right behind this move, as the fund cut about $72.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 14 funds by the end of the third quarter.

The concluding page of this article reveals the smart money activity in other companies with market capitalizations similar to the one of MYL.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mylan Inc. (NASDAQ:MYL) but similarly valued. We will take a look at VF Corp (NYSE:VFC), DISH Network Corp (NASDAQ:DISH), Hewlett Packard Enterprise Co (NYSE:HPE), and Baxalta Inc. (NYSE:BXLT). All of these stocks’ market caps are closest to MYL’s market cap.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1.75 billion. That figure was $3.27 billion in MYL’s case. DISH Network Corp. (NASDAQ:DISH) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Mylan Inc. (NASDAQ:MYL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None