Hedge funds are much more experienced in picking stocks than ordinary investors. They have a group of smart professionals who have years of experience in investments to research the market and the stocks. Sometimes they are even able to obtain material non-public information and make trades on the information. For ordinary investors who do not want to pay the expensive hedge fund fees or aren’t wealthy enough to qualify, imitating hedge funds’ most popular stock picks is a great strategy. According to our studies, this strategy beats the market on the average by 2 percentage points annually.
Below we compiled a list of healthcare stocks that hedge funds are most bullish about. The data is gathered from Goldman Sachs’ hedge funds report and show the hedge fund holdings as of September 30.
| Ticker |
Company |
No. of HFs |
% of Equity Cap owned by HFs |
| JNJ |
Johnson & Johnson |
14 |
1 |
| PFE |
Pfizer Inc. |
29 |
2 |
| VRX |
Valeant Pharmaceuticals International, Inc. |
14 |
16 |
| WLP |
WellPoint Inc. |
15 |
8 |
| CVS |
CVS Caremark |
14 |
5 |
Pfizer Inc (PFE) is the healthcare stock that most hedge funds are bullish about. It was owned by 29 hedge funds and 2% of its equity cap is in the hands of hedge funds. The drug manufacturer has a market cap of $153B and a P/E ratio of 15.62. It was up about 10% since the beginning of this year. Ken Fisher was bullish about PFE. His Fisher Asset Management reported to own nearly $400 million worth of PFE stocks as of September 30th.
Valeant Pharmaceuticals International Inc (VRX) has the largest percentage of its equity owned by hedge funds. Hedge funds own 16% of the outstanding shares of this drug delivery company. VRX has a market cap of $13.8B and a P/E ratio of 220.86. It returned around 48% since the beginning of this year. There are 14 hedge funds bullish about VRX as of September 30. Andreas Halvorsen’s Viking Global had more than $300 million invested in this stock.
WellPoint Inc (WLP) is also very popular among hedge funds. As of September 30, there are 15 hedge funds owning 8% of the equity cap of WellPoint. WLP has a market cap of $23.8B and a relatively low P/E ratio of 8.99. WLP returned 14% so far this year.
Johnson & Johnson (JNJ), the mega cap company, was owned by 14 different hedge funds at the end of the third quarter. One percent of its equity cap was owned by these 14 hedge funds. It returned approximately 3% since the beginning of this year. JNJ has a market cap of $173B and a P/E ratio of 15.45. Among the 14 hedge funds owned JNJ, Warren Buffett’s Berkshire Hathaway had the biggest position. The fund had $2.4 billion invested in Johnson & Johnson.
CVS Caremark (CVS) was owned by 14 hedge funds as a top 10 stock holding. Hedge funds owned 5% of its outstanding shares. CVS is more popular than its rivals Express Scripts (ESRX) and Medco Health Solutions (MHS). ESRX proposed to acquire MHS for $29 billion but the merger is facing intensified scrutiny from lawmakers. If this merger proceeds the merged company will be nearly twice as big as CVS. CVS has a forward PE ratio of 14 and is expected to increase its earnings by around 11% annually over the next five years. CVS returned 12% so far this year.
Healthcare is a fast-growing industry in the United States. National Health Expenditures (NHE) as a share of GDP is expected to be 19.6% by 2019, based on our projections of NHE for the next 10 years. The five healthcare stocks on the list above generated positive better than market return so far this year. As the spending and costs for healthcare are rising, we believe healthcare stocks will remain in the portfolio of hedge funds, and we recommend investors to focus on the healthcare stocks that are popular among hedge funds.
Source : seekingalpha