Were Hedge Funds Right About Souring On Amgen, Inc. (AMGN)?

Asma UL Husna

In this article we are going to use hedge fund sentiment as a tool and determine whether Amgen, Inc. (NASDAQ:AMGN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Amgen, Inc. (NASDAQ:AMGN) the right pick for your portfolio? The best stock pickers were getting less bullish. The number of bullish hedge fund bets went down by 1 in recent months. Amgen, Inc. (NASDAQ:AMGN) was in 51 hedge funds' portfolios at the end of June. The all time high for this statistics is 73. Our calculations also showed that AMGN 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). There were 52 hedge funds in our database with AMGN positions at the end of the first quarter. 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Arthur B Cohen and Joseph Healey of Healthcor Management LP

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. Keeping this in mind let's go over the fresh hedge fund action encompassing Amgen, Inc. (NASDAQ:AMGN).

How have hedgies been trading Amgen, Inc. (NASDAQ:AMGN)?

Heading into the third quarter of 2020, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AMGN over the last 20 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Amgen, Inc. (NASDAQ:AMGN), which was worth $380.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $320.8 million worth of shares. Citadel Investment Group, Adage Capital Management, and GLG Partners 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 Copernicus Capital Management allocated the biggest weight to Amgen, Inc. (NASDAQ:AMGN), around 8.53% of its 13F portfolio. Valueworks LLC is also relatively very bullish on the stock, setting aside 3.61 percent of its 13F equity portfolio to AMGN.

Seeing as Amgen, Inc. (NASDAQ:AMGN) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of money managers who were dropping their positions entirely heading into Q3. Interestingly, Anand Parekh's Alyeska Investment Group said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $51 million in stock, and Michael Castor's Sio Capital was right behind this move, as the fund sold off about $21.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to Amgen, Inc. (NASDAQ:AMGN). These stocks are China Mobile Limited (NYSE:CHL), McDonald's Corporation (NYSE:MCD), Accenture Plc (NYSE:ACN), Costco Wholesale Corporation (NASDAQ:COST), Bristol Myers Squibb Company (NYSE:BMY), T-Mobile US, Inc. (NASDAQ:TMUS), and Sanofi (NASDAQ:SNY). This group of stocks' market valuations are closest to AMGN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHL,9,456289,-2 MCD,57,1356732,-9 ACN,44,1080127,-5 COST,61,4730681,-7 BMY,136,6605597,10 TMUS,113,7158311,48 SNY,24,1220415,9 Average,63.4,3229736,6.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.4 hedge funds with bullish positions and the average amount invested in these stocks was $3230 million. That figure was $1794 million in AMGN's case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 9 bullish hedge fund positions. Amgen, Inc. (NASDAQ:AMGN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AMGN is 41.5. 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 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 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 surpassed the market by 21 percentage points. Unfortunately AMGN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AMGN investors were disappointed as the stock returned -3% 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 most of these stocks already outperformed the market in 2020.

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

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