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 Pfizer Inc. (NYSE:PFE) and determine whether hedge funds had an edge regarding this stock.
Pfizer Inc. (NYSE:PFE) investors should pay attention to a decrease in hedge fund sentiment in recent months. Pfizer Inc. (NYSE:PFE) was in 66 hedge funds’ portfolios at the end of June. The all time high for this statistics is 119. There were 67 hedge funds in our database with PFE positions at the end of the first quarter. Our calculations also showed that PFE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing Pfizer Inc. (NYSE:PFE).
Hedge fund activity in Pfizer Inc. (NYSE:PFE)
At Q2’s end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -1% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PFE over the last 20 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of Pfizer Inc. (NYSE:PFE), with a stake worth $361.9 million reported as of the end of September. Trailing Two Sigma Advisors was AQR Capital Management, which amassed a stake valued at $325.2 million. D E Shaw, Diamond Hill Capital, and Millennium 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 Voleon Capital allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 9.32% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, setting aside 6.61 percent of its 13F equity portfolio to PFE.
Because Pfizer Inc. (NYSE:PFE) has faced bearish sentiment from the smart money, it’s easy to see that there was a specific group of hedgies that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Samuel Isaly’s OrbiMed Advisors sold off the largest investment of the 750 funds tracked by Insider Monkey, worth an estimated $98.3 million in stock. Renaissance Technologies, also dumped its stock, about $84.9 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Pfizer Inc. (NYSE:PFE). We will take a look at Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), AbbVie Inc (NYSE:ABBV), Oracle Corporation (NYSE:ORCL), salesforce.com, inc. (NYSE:CRM), SAP SE (NYSE:SAP), and Chevron Corporation (NYSE:CVX). All of these stocks’ market caps resemble PFE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMCSA | 80 | 7207135 | -3 |
| TM | 13 | 719379 | 2 |
| ABBV | 89 | 6226917 | 8 |
| ORCL | 49 | 2312027 | 1 |
| CRM | 107 | 9769139 | -10 |
| SAP | 16 | 1253641 | 1 |
| CVX | 50 | 1585417 | -3 |
| Average | 57.7 | 4153379 | -0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.7 hedge funds with bullish positions and the average amount invested in these stocks was $4153 million. That figure was $2139 million in PFE’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Pfizer Inc. (NYSE:PFE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PFE is 48.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on PFE as the stock returned 19.9% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
