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 Bristol Myers Squibb Company (NYSE:BMY) and determine whether hedge funds had an edge regarding this stock.
Bristol Myers Squibb Company (NYSE:BMY) has seen an increase in support from the world's most elite money managers of late. Hedge fund sentiment towards the stock reached its all time high, again. Our calculations also showed that BMY ranks #10 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.
In the financial world there are a lot of gauges stock traders employ to evaluate their stock investments. A couple of the most under-the-radar gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform the S&P 500 by a healthy margin (see the details here).
John Overdeck of Two Sigma
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's take a peek at the recent hedge fund action encompassing Bristol Myers Squibb Company (NYSE:BMY).
How have hedgies been trading Bristol Myers Squibb Company (NYSE:BMY)?
At Q2's end, a total of 136 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. By comparison, 65 hedge funds held shares or bullish call options in BMY a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Bristol Myers Squibb Company (NYSE:BMY), which was worth $2557.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $354.2 million worth of shares. Two Sigma Advisors, GQG Partners, and Farallon Capital 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 Birchview Capital allocated the biggest weight to Bristol Myers Squibb Company (NYSE:BMY), around 28.16% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, dishing out 11.05 percent of its 13F equity portfolio to BMY.
As aggregate interest increased, key hedge funds have been driving this bullishness. GQG Partners, managed by Rajiv Jain, created the biggest position in Bristol Myers Squibb Company (NYSE:BMY). GQG Partners had $220.9 million invested in the company at the end of the quarter. Farallon Capital also made a $213.2 million investment in the stock during the quarter. The other funds with brand new BMY positions are Robert Pohly's Samlyn Capital, David Costen Haley's HBK Investments, and Lawrence Hawkins's Prosight Capital.
Let's now review hedge fund activity in other stocks similar to Bristol Myers Squibb Company (NYSE:BMY). These stocks are Costco Wholesale Corporation (NASDAQ:COST), McDonald's Corporation (NYSE:MCD), Medtronic plc (NYSE:MDT), Amgen, Inc. (NASDAQ:AMGN), NextEra Energy, Inc. (NYSE:NEE), Wells Fargo & Company (NYSE:WFC), and AstraZeneca plc (NYSE:AZN). This group of stocks' market values are closest to BMY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COST,61,4730681,-7 MCD,57,1356732,-9 MDT,58,2705363,-1 AMGN,51,1794209,-1 NEE,55,1943660,3 WFC,86,10344809,10 AZN,38,1920506,12 Average,58,3542280,1 [/table]
As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $3.5 billion. That figure was $6.6 billion in BMY's case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Bristol Myers Squibb Company (NYSE:BMY) is more popular among hedge funds. Our overall hedge fund sentiment score for BMY is 95.5. 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. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. Unfortunately BMY wasn't nearly as successful as the rest of these 10 stocks and hedge funds that were betting on BMY were disappointed as the stock returned 6.9% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.
