Was The Smart Money Right About Eli Lilly and Company (LLY)?

·6 min read

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Eli Lilly and Company (NYSE:LLY).

Is Eli Lilly and Company (NYSE:LLY) undervalued? The smart money was cutting their exposure. The number of bullish hedge fund positions were trimmed by 10 recently. Eli Lilly and Company (NYSE:LLY) was in 50 hedge funds' portfolios at the end of December. The all time high for this statistic is 60. Our calculations also showed that LLY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Minhua Zhang of Weld Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to take a look at the new hedge fund action surrounding Eli Lilly and Company (NYSE:LLY).

Do Hedge Funds Think LLY Is A Good Stock To Buy Now?

At fourth quarter's end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in LLY over the last 22 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Eli Lilly and Company (NYSE:LLY), with a stake worth $850.6 million reported as of the end of December. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $358.9 million. GQG Partners, AQR Capital Management, and Millennium 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 Sphera Global Healthcare Fund allocated the biggest weight to Eli Lilly and Company (NYSE:LLY), around 6.14% of its 13F portfolio. Tri Locum Partners is also relatively very bullish on the stock, setting aside 3.4 percent of its 13F equity portfolio to LLY.

Seeing as Eli Lilly and Company (NYSE:LLY) has experienced a decline in interest from the smart money, it's safe to say that there was a specific group of funds who were dropping their entire stakes heading into Q1. It's worth mentioning that Renaissance Technologies cut the largest stake of all the hedgies tracked by Insider Monkey, worth about $71.3 million in stock. Donald Sussman's fund, Paloma Partners, also said goodbye to its stock, about $26.2 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds heading into Q1.

Let's now take a look at hedge fund activity in other stocks similar to Eli Lilly and Company (NYSE:LLY). We will take a look at McDonald's Corporation (NYSE:MCD), Unilever PLC (NYSE:UL), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), NextEra Energy, Inc. (NYSE:NEE), and Texas Instruments Incorporated (NASDAQ:TXN). All of these stocks' market caps resemble LLY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCD,62,2889876,-3 UL,25,1172892,12 DHR,81,5378840,6 MDT,59,2814949,-3 SAP,14,1390775,-2 NEE,61,3078288,-3 TXN,56,2497473,1 Average,51.1,2746156,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.1 hedge funds with bullish positions and the average amount invested in these stocks was $2746 million. That figure was $3028 million in LLY's case. Danaher Corporation (NYSE:DHR) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LLY is 46.9. 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 negative signal and 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and surpassed the market again by 1.6 percentage points. Unfortunately LLY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LLY investors were disappointed as the stock returned 8.7% since the end of December (through 4/30) 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.

Get real-time email alerts: Follow Eli Lilly & Co (NYSE:LLY)

Disclosure: None. This article was originally published at Insider Monkey.

Related Content

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting