Were Hedge Funds Right About Souring On Mylan N.V. (MYL)?

In this article you are going to find out whether hedge funds think Mylan N.V. (NASDAQ:MYL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Mylan N.V. (NASDAQ:MYL) investors should be aware of a decrease in hedge fund sentiment in recent months. Mylan N.V. (NASDAQ:MYL) was in 46 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 74. There were 49 hedge funds in our database with MYL holdings at the end of March. Our calculations also showed that MYL 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.

James E. Flynn of Deerfield Management

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. Now let’s take a gander at the fresh hedge fund action regarding Mylan N.V. (NASDAQ:MYL).

Hedge fund activity in Mylan N.V. (NASDAQ:MYL)

At second quarter’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2020. By comparison, 30 hedge funds held shares or bullish call options in MYL a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the most valuable position in Mylan N.V. (NASDAQ:MYL), worth close to $269.5 million, accounting for 1.8% of its total 13F portfolio. The second largest stake is held by James E. Flynn of Deerfield Management, with a $195.4 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Cliff Asness’s AQR Capital Management, John Paulson’s Paulson & Co and Stephen DuBois’s Camber Capital Management. In terms of the portfolio weights assigned to each position Courage Capital allocated the biggest weight to Mylan N.V. (NASDAQ:MYL), around 11.84% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, designating 10.12 percent of its 13F equity portfolio to MYL.

Due to the fact that Mylan N.V. (NASDAQ:MYL) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that slashed their entire stakes heading into Q3. At the top of the heap, Michael Rockefeller and KarláKroeker’s Woodline Partners said goodbye to the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $10.4 million in stock. Louis Bacon’s fund, Moore Global Investments, also dropped its stock, about $7.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to Mylan N.V. (NASDAQ:MYL). We will take a look at Gold Fields Limited (NYSE:GFI), Caesars Entertainment, Inc. (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), Carnival Corporation & plc (NYSE:CUK), Pinnacle West Capital Corporation (NYSE:PNW), Everest Re Group Ltd (NYSE:RE), and Phillips 66 Partners LP (NYSE:PSXP). All of these stocks’ market caps are closest to MYL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $987 million. That figure was $1646 million in MYL’s case. Caesars Entertainment, Inc.(NASDAQ:CZR) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 6 bullish hedge fund positions. Mylan N.V. (NASDAQ:MYL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MYL is 66.1. 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 MYL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MYL were disappointed as the stock returned -2.4% 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.