We recently published a list of 10 Best Big-Name Stocks to Buy Right Now According to Short Sellers. In this article, we are going to take a look at where AbbVie Inc. (NYSE:ABBV) stands against the other big name stocks.
In early April 2024, Goldman Sachs Inc.’s data revealed that short selling on individual US-listed stocks was at the highest level in 6 months, and the most targeted sectors were technology, telecom, and media. This increase in short positions was seen after the significant ~9% advance seen in 1Q 2024 for the S&P 500. As per the data, some hedge funds that were using long-short equity strategies have started to fight the rally.
During extreme market volatility, short selling has become pronounced and has drawn significant interest from institutional and retail investors. It has prompted regulatory intervention as new reporting requirements have been issued by the SEC to offer transparency and ensure the availability of short position data.
Recent Trends in Short Selling
In the 2Q 2024, the US and Canadian markets saw an increase of ~$58 billion in short interest or a rise of 5.1% from the previous quarter.
Recently, S3 Partners, a renowned tracker of short-interest data, reported that the sectors that saw the largest increases in short exposure in 2Q 2024 included information technology (a rise of $49.3 billion), communication services (at $11.2 billion), and utilities (a rise of $3.7 billion) from the previous quarter. The sectors that saw the largest decrease in short exposure were the energy and financial sectors, down $12.3 billion and $1.6 billion, respectively.
Earlier in 2024, a significant surge in the leading AI giant resulted in losses of ~$3 billion for the short sellers. Some market experts even described this as an “AI-generated nightmare.”
In global equities, short interest climbed during July 2024, with strong increases seen throughout the Automobile (+13bps), REITs (+11bps), and Consumer Durables (+11bps) sectors, reported S&P Global. On the other hand, the largest decreases were in the Financial Services (-10bps) and Real Estate Management and Development (-4bps) sectors.
Talking about the US equities, the average short interest decreased to 77 basis points during July 2024. Significant increases in short interest were seen throughout REITs (+6 basis points) and the Household and Personal Products (+8 basis points) sectors. Conversely, the largest declines were in the Financial Services (-15 basis points) and the Automobile (-9 basis points) sectors.
Heavily Shorted Stocks Might Not Always Be in Distress, Says S3 Partners
S3 Partners revealed that there is a relatively weak correlation between short positions in certain assets and distress measures. This means that not all heavily shorted stocks are facing difficulties. As per the firm, broader market sentiments and valuation concerns are some of the factors that can drive short interest.
The company believes that shorting an asset can form part of broader strategies or hedging activities not linked to distress. It mentioned that there can be 3 measures of bearishness for stocks —- average analyst ratings (From 1 to 5), Credit default swap (CDS) spreads, and Altman Z-Score.
For example, the US Dollar had a low short position of ~1.32%. However, it had a high CDS spread of 1000 basis points. This indicates high perceived distress on the currency even though there is minimal short interest. This can be because of factors such as currency market dynamics or investor sentiments.
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AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 67
Short % of Shares Outstanding (August 15, 2024): 1.14%
AbbVie Inc. (NYSE:ABBV) is a pharmaceutical company with strong exposure to immunology and oncology.
AbbVie Inc. (NYSE:ABBV)’s next-generation immunology drugs, Skyrizi and Rinvoq, continue to generate sufficient growth to offset biosimilar pressure on the firm’s older immunology drug, Humira. The immunology drugs, Skyrizi and Rinvoq, appear to be well-placed for growth given the leading efficacy in several large immunology indications. They both have patent protection into the early/mid-2030s. Further, its strong aesthetics business (led by Botox) offers long product cycles as a result of brand power and physician entrenchment.
Considering the limited patent losses, AbbVie Inc. (NYSE:ABBV) should post mid-single-digit sales growth over the upcoming 3 years. Also, AbbVie Inc. (NYSE:ABBV) is expected to see the benefits of the recent acquisition. Its $10 billion acquisition of ImmunoGen led to the addition of Elahere to its oncology portfolio. Elahere, which is an antibody-drug conjugate, should top $2 billion in sales by the end of the decade, as per Barclays.
In 1H 2024, AbbVie Inc. (NYSE:ABBV)’s operational sales went up by ~4% in 1H 2024, with significant contributions from the immunology and oncology segments. For FY 2024, the company is increasing its adjusted diluted EPS guidance from $10.61 – $10.81 to $10.71 – $10.91. The company announced the acquisition of Cerevel Therapeutics recently for ~$8.7 billion. As a result of this acquisition, the company will now be able to expand its presence in the neurological disorders space.
Analysts at Morgan Stanley initiated the coverage on the shares of AbbVie Inc. (NYSE:ABBV). They increased the price target on the company’s shares from $211.00 to $218.00, giving an “Overweight” rating on 12th August. As per Insider Monkey’s 2Q 2024 data, 67 hedge funds were long AbbVie Inc. (NYSE:ABBV).
Polen Capital, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, and AbbVie Inc. (NYSE:ABBV). AbbVie fell on the back of results that failed to allay concerns around continuing biosimilar threats to its very large, blockbuster arthritis drug, Humira, which went off patent last year.”
Overall ABBVD ranks 7th on our list of the best big name stocks to buy according to short sellers. While we acknowledge the potential of ABBVD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than ABBVD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.