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Based on the transactions of nearly 700 hedge funds, we compiled the list of the top 9 healthcare stocks hedge funds are crazy about during the most recent fourth quarter:
Pfizer (NYSE:PFE): Nearly 150 hedge funds own 3% of the outstanding shares of Pfizer. Hedge fund stars like Lee Ainslie, David Einhorn, David Tepper, and Curtis Schenker all own PFE in their portfolio. Bridger’s Roberto Mignone sold all his Pfizer holdings during the fourth quarter. Pfizer was one of the best stock picks in the pharma space. Its peers such as Glaxo Smith (NYSE:GSK), Novartis (NYSE:NVS) and Merck (NYSE:MRK) lost value during the past three months, but Pfizer returned nearly 15% since the middle of December.
Johnson & Johnson (NYSE:JNJ): There are 93 hedge funds, which own 1% of this healthcare giant. The prominent investors with JNJ positions are all billionaire investors: Warren Buffett, David Tepper, and Jim Simons.
Genzyme (GENZ): There are 91 hedge funds invested in Genzyme. They spent an additional $1.2 billion during the fourth quarter. Genzyme is a merger arbitrage play. Tom Steyer’s Farallon and Richard Perry’s Perry Capital are among the hedge funds employing this strategy.
CVS Caremark (NYSE:CVS): There are also 91 hedge funds with CVS Caremark positions, but none of the prominent hedge fund managers we follow has CVS in its portfolio. Other hedge funds own 5% of CVS’ outstanding shares. Prominent hedge fund managers were right about being cautious. CVS lost a couple of percentage points during the last 3 months. Its competitors performed much better. Walgreen (WAG) returned 10% and Rite Aid (NYSE:RAD) gained around 15% since the middle of December.
Wellpoint Inc (WLP): This insurance company underperformed the broader market in 2010, and 91 hedge funds saw an opportunity in this. At the end of 2010, nine percent of the Welpoint’s outstanding shares were owned by hedge funds. The stock returned more than 20% since the beginning of the year vs. the S&P 500 (NYSEARCA:SPY), which is pretty much flat with the recent declines. Appaloosa’s David Tepper bought Wellpoint during third quarter of 2010, right before the huge increase in the stock market and WLP.
Merck & Co (MRK): There were 82 hedge funds with MRK positions at the end of December. They collectively own 1 percent of outstanding shares. Unfortunately, MRK underperformance was in double digits so far in 2011. David Tepper’s $133 Million position lost nearly $14 Million.
Teva Pharmaceutical (NASDAQ:TEVA): This is one of the stocks hedge funds spent $1 billion on during the fourth quarter. John Griffin’s Blue Ridge, Lee Ainslie’s Maverick, George Soros and Jim Simons are all bullish about TEVA. Unfortunately Teva didn’t perform well during the past three months, losing nearly 10%. Its peers, such as Novo Nordisk (NYSE:NVO), Allergan (NYSE:AGN), and Vertex Pharmaceuticals (NASDAQ:VRTX) handily beat TEVA. AGN was almost flat, but NVO returned around 12% and VRTX gained more than 30% since the middle of December.
United Health Group (NYSE:UNH): There were 76 hedge funds with UNH holdings at the end of December. David Tepper and Roberto Mignone are among the hedge fund managers with UNH holdings. David Tepper is actually bullish about the insurers in general and he has WLP in his portfolio as well. UNH gained nearly 10% so far in 2010, beating the market by a large margin. Aetna (NYSE:AET) was the other large insurer in the industry. It wasn’t favored by hedge fund managers as much as Wellpoint and UNH. Fortunately for the hedge funds, Aetna underperformed the UNH and WLP by around 5 percentage points during the past 6 months.
Abbott Labs (NYSE:ABT): There were 75 hedge funds holding ABT in their portfolios at the end of December. Abbott underperformed the market during the past 3 months but managed to beat its peers, such as Novartis, Johnson & Johnson, and Eli Lilly (NYSE:LLY). For expample, Novartis (NVS) lost 9 percent since the middle of December, suggesting that ABT was a good stock pick in a bad industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.