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 Bausch Health Companies (NYSE:BHC).
Hedge fund interest in Bausch Health Companies (NYSE:BHC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BHC 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). At the end of this article we will also compare BHC to other stocks including Kingsoft Cloud Holdings Limited (NASDAQ:KC), Repligen Corporation (NASDAQ:RGEN), and GrubHub Inc (NYSE:GRUB) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest insurance companies to identify fast growing companies in various industries. 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. Now let’s view the new hedge fund action encompassing Bausch Health Companies (NYSE:BHC).
How are hedge funds trading Bausch Health Companies (NYSE:BHC)?
At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in BHC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Bausch Health Companies (NYSE:BHC) was held by Paulson & Co, which reported holding $472.6 million worth of stock at the end of June. It was followed by ValueAct Capital with a $328 million position. Other investors bullish on the company included Glenview Capital, Renaissance Technologies, and GoldenTree Asset Management. In terms of the portfolio weights assigned to each position GoldenTree Asset Management allocated the biggest weight to Bausch Health Companies (NYSE:BHC), around 17.61% of its 13F portfolio. Paulson & Co is also relatively very bullish on the stock, designating 15.1 percent of its 13F equity portfolio to BHC.
Due to the fact that Bausch Health Companies (NYSE:BHC) has faced falling interest from the smart money, it’s easy to see that there exists a select few fund managers who were dropping their full holdings heading into Q3. Intriguingly, David Greenspan’s Slate Path Capital dropped the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $65.8 million in stock, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP was right behind this move, as the fund cut about $59.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bausch Health Companies (NYSE:BHC) but similarly valued. These stocks are Kingsoft Cloud Holdings Limited (NASDAQ:KC), Repligen Corporation (NASDAQ:RGEN), GrubHub Inc (NYSE:GRUB), Federal Realty Investment Trust (NYSE:FRT), Plains All American Pipeline, L.P. (NYSE:PAA), Amedisys Inc (NASDAQ:AMED), and Penumbra Inc (NYSE:PEN). This group of stocks’ market values match BHC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KC | 20 | 62450 | 20 |
| RGEN | 34 | 688852 | 13 |
| GRUB | 52 | 1080219 | 20 |
| FRT | 20 | 76045 | -4 |
| PAA | 9 | 65144 | 1 |
| AMED | 30 | 375114 | 10 |
| PEN | 20 | 263196 | 0 |
| Average | 26.4 | 373003 | 8.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $1746 million in BHC’s case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 9 bullish hedge fund positions. Bausch Health Companies (NYSE:BHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BHC is 60.8. 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. 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately BHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHC were disappointed as the stock returned -9.8% since the end of June (through 10/30) 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.
Follow Bausch Health Companies Inc. (NYSE:BHC)
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Disclosure: None. This article was originally published at Insider Monkey.
