Was The Smart Money Right About Alkermes Plc (ALKS)?

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 Alkermes Plc (NASDAQ:ALKS) and determine whether hedge funds had an edge regarding this stock.

Is Alkermes Plc (NASDAQ:ALKS) an outstanding stock to buy now? The smart money was cutting their exposure. The number of long hedge fund bets dropped by 1 recently. Alkermes Plc (NASDAQ:ALKS) was in 35 hedge funds’ portfolios at the end of September. The all time high for this statistic is 36. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a look at the new hedge fund action surrounding Alkermes Plc (NASDAQ:ALKS).

Alex Denner of Sarissa Capital Management

Do Hedge Funds Think ALKS Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in ALKS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Sarissa Capital Management was the largest shareholder of Alkermes Plc (NASDAQ:ALKS), with a stake worth $407.5 million reported as of the end of September. Trailing Sarissa Capital Management was Renaissance Technologies, which amassed a stake valued at $146.3 million. Camber Capital Management, Holocene Advisors, and Armistice Capital 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 Sarissa Capital Management allocated the biggest weight to Alkermes Plc (NASDAQ:ALKS), around 31.99% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, earmarking 6.09 percent of its 13F equity portfolio to ALKS.

Because Alkermes Plc (NASDAQ:ALKS) has faced falling interest from the smart money, it’s easy to see that there is a sect of hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $37.8 million in call options. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its call options, about $12 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Alkermes Plc (NASDAQ:ALKS) but similarly valued. These stocks are Antero Midstream Corp (NYSE:AM), LHC Group, Inc. (NASDAQ:LHCG), ICU Medical, Inc. (NASDAQ:ICUI), AllianceBernstein Holding LP (NYSE:AB), Kodiak Sciences Inc (NASDAQ:KOD), Webster Financial Corporation (NYSE:WBS), and Science Applications International Corp (NYSE:SAIC). This group of stocks’ market values resemble ALKS’s market value.

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As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $978 million in ALKS’s case. ICU Medical, Inc. (NASDAQ:ICUI) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Alkermes Plc (NASDAQ:ALKS) is more popular among hedge funds. Our overall hedge fund sentiment score for ALKS is 83.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, ALKS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ALKS were disappointed as the stock returned -17.3% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.