Was The Smart Money Right About United Therapeutics Corporation (UTHR)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about United Therapeutics Corporation (NASDAQ:UTHR).

United Therapeutics Corporation (NASDAQ:UTHR) investors should be aware of an increase in hedge fund sentiment of late. United Therapeutics Corporation (NASDAQ:UTHR) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that UTHR 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Kamran Moghtaderi of Eversept Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a glance at the new hedge fund action regarding United Therapeutics Corporation (NASDAQ:UTHR).

How are hedge funds trading United Therapeutics Corporation (NASDAQ:UTHR)?

At second quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in UTHR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in United Therapeutics Corporation (NASDAQ:UTHR), which was worth $450.9 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $133.1 million worth of shares. AQR Capital Management, Citadel Investment Group, and Palo Alto Investors 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 Great Point Partners allocated the biggest weight to United Therapeutics Corporation (NASDAQ:UTHR), around 6% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, designating 5.9 percent of its 13F equity portfolio to UTHR.

As aggregate interest increased, specific money managers were breaking ground themselves. Eversept Partners, managed by Kamran Moghtaderi, initiated the largest position in United Therapeutics Corporation (NASDAQ:UTHR). Eversept Partners had $28.2 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $4.8 million position during the quarter. The other funds with brand new UTHR positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Mitch Kuflik and Rob Sobel’s Brahman Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Therapeutics Corporation (NASDAQ:UTHR) but similarly valued. These stocks are Levi Strauss & Co. (NYSE:LEVI), FLIR Systems, Inc. (NASDAQ:FLIR), Axalta Coating Systems Ltd (NYSE:AXTA), Nielsen Holdings plc (NYSE:NLSN), Comerica Incorporated (NYSE:CMA), PLDT Inc. (NYSE:PHI), and Ralph Lauren Corporation (NYSE:RL). All of these stocks’ market caps resemble UTHR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $550 million. That figure was $1344 million in UTHR’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. United Therapeutics Corporation (NASDAQ:UTHR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UTHR is 82.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately UTHR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UTHR were disappointed as the stock returned 1.5% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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