Were Hedge Funds Right About Buying Pfizer Inc. (PFE)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Pfizer Inc. (NYSE:PFE) and determine whether the smart money was really smart about this stock.

Is Pfizer Inc. (NYSE:PFE) a healthy stock for your portfolio? The best stock pickers were taking an optimistic view. The number of bullish hedge fund positions rose by 5 at the end of Q1. Our calculations also showed that PFE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Samuel Isaly of OrbiMed Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the latest hedge fund action regarding Pfizer Inc. (NYSE:PFE).

What have hedge funds been doing with Pfizer Inc. (NYSE:PFE)?

At the end of the first quarter, a total of 67 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PFE over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D E Shaw held the most valuable stake in Pfizer Inc. (NYSE:PFE), which was worth $383.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $361.2 million worth of shares. Diamond Hill Capital, Citadel Investment Group, and Adage Capital 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 Endurant Capital Management allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 7.55% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, dishing out 4.69 percent of its 13F equity portfolio to PFE.

Now, some big names were leading the bulls’ herd. OrbiMed Advisors, managed by Samuel Isaly, initiated the biggest position in Pfizer Inc. (NYSE:PFE). OrbiMed Advisors had $98.3 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $71.4 million investment in the stock during the quarter. The other funds with brand new PFE positions are Michael Rockefeller and KarláKroeker’s Woodline Partners, Steve Cohen’s Point72 Asset Management, and John Brennan’s Sirios Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Pfizer Inc. (NYSE:PFE). These stocks are The Walt Disney Company (NYSE:DIS), Toyota Motor Corporation (NYSE:TM), PepsiCo, Inc. (NYSE:PEP), and Cisco Systems, Inc. (NASDAQ:CSCO). This group of stocks’ market values match PFE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $2565 million. That figure was $3160 million in PFE’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 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. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately PFE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PFE were disappointed as the stock returned 0% during the same time period 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.