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 817 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 Pfizer Inc. (NYSE:PFE).
Is Pfizer Inc. (NYSE:PFE) a good stock to buy now? PFE shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 66 hedge funds' portfolios at the end of September. Our calculations also showed that PFE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare PFE to other stocks including AT&T Inc. (NYSE:T), Novartis AG (NYSE:NVS), and NIKE, Inc. (NYSE:NKE) to get a better sense of its popularity. 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's go over the recent hedge fund action regarding Pfizer Inc. (NYSE:PFE).
Hedge fund activity in Pfizer Inc. (NYSE:PFE)
At Q3's end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 58 hedge funds with a bullish position in PFE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Two Sigma Advisors was the largest shareholder of Pfizer Inc. (NYSE:PFE), with a stake worth $368.6 million reported as of the end of September. Trailing Two Sigma Advisors was Diamond Hill Capital, which amassed a stake valued at $319.7 million. AQR Capital Management, D E Shaw, and Balyasny Asset 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 Game Creek Capital allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 6.93% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, designating 4.82 percent of its 13F equity portfolio to PFE.
Judging by the fact that Pfizer Inc. (NYSE:PFE) has witnessed bearish sentiment from the smart money, it's easy to see that there were a few fund managers who sold off their positions entirely heading into Q4. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management dumped the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $60.9 million in stock. Anand Parekh's fund, Alyeska Investment Group, also dropped its stock, about $25 million worth. These moves are intriguing to say the least, 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 similar to Pfizer Inc. (NYSE:PFE). These stocks are AT&T Inc. (NYSE:T), Novartis AG (NYSE:NVS), NIKE, Inc. (NYSE:NKE), Abbott Laboratories (NYSE:ABT), PepsiCo, Inc. (NASDAQ:PEP), SAP SE (NYSE:SAP), and Toyota Motor Corporation (NYSE:TM). This group of stocks' market values resemble PFE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position T,51,1158558,-6 NVS,25,1686255,4 NKE,75,4218416,4 ABT,62,4285555,-5 PEP,52,2937459,-1 SAP,16,1806430,0 TM,12,698753,-1 Average,41.9,2398775,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $2399 million. That figure was $2129 million in PFE's case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 12 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. Our overall hedge fund sentiment score for PFE is 64.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately PFE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PFE were disappointed as the stock returned 8% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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