Shares of Merck & Co., Inc. (NYSE:MRK) and Monster Beverage Corp (NASDAQ:MNST) have both moved upward today thanks to bullish ratings updates by major analysts. In a note published today, BMO Capital Markets upgraded Merck & Co., Inc. to ‘Outperform’ from ‘Market Perform,’ citing the potential for the stock to have “multiple expansion”. Meanwhile, Morgan Stanley upgraded Monster Beverage Corp to ‘Overweight’ from ‘Equal Weight’ because of the attractive entry price the stock now has.
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According to BMO Capital Markets, they are now “more optimistic” of the Merck & Co., Inc. (NYSE:MRK) pipeline, saying that the execution of the company in its commercial and research & development segments has been “impressive”. The pharmaceutical firm, it said, may be on the verge of a strong five- to six-year growth cycle, with key drivers being its higher-margin specialty franchises; more specifically its Keytruda and Hep-C drugs. Moreover, BMO Capital Markets’ Alex Arfaei said that MK-8931 for Alzheimer’s disease may also prove to be a growth driver. He forecasts that the compound annual growth rate (CAGR) of revenue will be 7% to 8%, while the EPS CAGR will be about 15% in the next three-to-five years.
Meanwhile, Morgan Stanley said that the recent selling pressure on Monster Beverage Corp (NASDAQ:MNST)’s stock presents a good opportunity to buy it. The firm noted that potential stock growth may be unlocked if the firm initiates share buybacks, which it believes will happen in the fourth quarter.
As for hedge funds, Merck & Co., Inc. (NYSE:MRK) and Monster Beverage Corp (NASDAQ:MNST) have differing fates based on the smart money’s activity. Merck & Co., Inc. saw an increase in hedge fund investments in the first quarter, while Monster Beverage Corp saw the opposite. We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks returned 123.1% since then and outperformed the S&P500 Index by 65 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.
Taking this into consideration, let’s take a peek at the latest key hedge fund activity concerning Merck & Co., Inc. and Monster Beverage Corp.
What does the smart money think about Merck & Co., Inc. (NYSE:MRK) and Monster Beverage Corp (NASDAQ:MNST)?
Fewer hedge funds were long in Merck & Co., Inc. (NYSE:MRK) at the close of the first quarter, as a total of 71 of the hedge funds tracked by Insider Monkey were bullish in this stock as of March 31, down by two from one quarter earlier. However, those who stayed long were more bullish, as there was an 8.39% increase in their total investment compared to the previous quarter, despite just 1.22% growth in the stock price in the first quarter. Nonetheless, it should be noted that only 1.83% of all outstanding Merck & Co. shares were owned by hedge funds we follow in the first quarter. AQR Capital Management, led by Cliff Asness, owned the largest hedge fund position in Merck & Co., Inc. (NYSE:MRK) on March 31, with 7.49 million shares for a $430.6 million position. Christopher Medlock James’ Partner Fund Management unloaded the largest investment of the 700 hedge funds tracked by Insider Monkey during the first quarter, dumping 711,503 shares which were valued at $40.41 million on December 31.
The same cannot be said about Monster Beverage Corp (NASDAQ:MNST), as the number of hedge funds long in the stock at the end of the first quarter, a total of 28, was unchanged from the previous quarter. There was, however, an overall decrease in hedge fund holdings, because even though there was a 20.14% quarter-over-quarter increase in investment, this is short of the 29.84% growth of the stock in the first quarter. This means that overall, there was a drainage of investment from the stock. The stock declined by 1.65% in the second quarter, proving hedge funds right. The stock’s performance from the start of the year, however, has been a jump of 37.07%. Nonetheless, hedge funds we track only owned 3.92% of the outstanding shares of Monster Beverage. In terms of the most bullish hedge funds on Monster Beverage Corp (NASDAQ:MNST), Broadwood Capital, managed by Neal C. Bradsher, held a monster stake in the energy drink firm on March 31, owning about 1.6 million shares worth about $221.3 million. On the other side of the fence, Eashwar Krishnan’s Tybourne Capital Management cut the biggest position in the stock during the first quarter out of the 700 funds we follow, letting go of 777,955 shares.
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