Smart Money is Flowing Into Jazz Pharmaceuticals plc (JAZZ)

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S economic data. It was not entirely clear whether the broader market sell-off made U.S equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that the Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25 through October 30. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Jazz Pharmaceuticals plc (NASDAQ:JAZZ) and see how it was affected.

Is Jazz Pharmaceuticals plc (NASDAQ:JAZZ) a great investment now? Prominent investors are betting on the stock. The number of bullish hedge fund positions went up by 8 recently. JAZZ was in 49 hedge funds’ portfolios at the end of the third quarter of 2015. There were 41 hedge funds in our database with JAZZ holdings 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 Towers Watson & Co (NYSE:TW), JetBlue Airways Corporation (NASDAQ:JBLU), and SCANA Corporation (NYSE:SCG) to gather more data points.

In the financial world there are several signals market participants employ to appraise stocks. A couple of the most underrated signals are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can beat the market by a very impressive margin (see the details here).

Now, let’s take a peek at the recent action surrounding Jazz Pharmaceuticals plc (NASDAQ:JAZZ).

What have hedge funds been doing with Jazz Pharmaceuticals plc (NASDAQ:JAZZ)?

Heading into Q4, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 20% jump from one quarter earlier. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or had already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Lykouretzos’ Hoplite Capital Management has the most valuable position in Jazz Pharmaceuticals plc (NASDAQ:JAZZ), worth close to $73.2 million, amounting to 2.8% of its total 13F portfolio. The second-largest stake is held by Eric Bannasch of Cadian Capital, with a $43.7 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Christopher James’ Partner Fund Management, Ken Griffin’s Citadel Investment Group, and Anand Parekh’s Alyeska Investment Group.

As industrywide interest jumped, key money managers were breaking ground themselves. Ardsley Partners, managed by Philip Hempleman, established the most outsized position in Jazz Pharmaceuticals plc (NASDAQ:JAZZ), of call options underlying JAZZ shares. Ardsley Partners had $6.6 million invested in the position at the end of the quarter. Peter Muller’s PDT Partners also initiated a $5 million position during the quarter. The other funds with brand new JAZZ positions are Matthew Hulsizer’s PEAK6 Capital Management, George Hall’s Clinton Group, and Steve Cohen’s Point72 Asset Management.

Let’s now review hedge fund activity in other stocks similar to Jazz Pharmaceuticals plc (NASDAQ:JAZZ). We will take a look at Towers Watson & Co (NYSE:TW), JetBlue Airways Corporation (NASDAQ:JBLU), SCANA Corporation (NYSE:SCG), and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). All of these stocks’ market caps resemble JAZZ’s market cap.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $483 million in JAZZ’s case. JetBlue Airways Corporation (NASDAQ:JBLU) is the most popular stock in this table. On the other hand SCANA Corporation (NYSE:SCG) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Jazz Pharmaceuticals plc (NASDAQ:JAZZ) 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.