10 Drug Companies Most Popular With Hedge Funds

by: Insider Monkey

Drug companies are non-cyclical stocks that do relatively well during bear markets. They used to be growth stocks too. Top pharmaceutical companies had a 7.1% growth rate between 2003 and 2009. However, the average growth rate is expected to fall to 1.3% by 2015. Nevertheless, these stocks yield more than long-term Treasuries. The top three most popular stocks yield around 3.5% annually.

We believe these stocks are great dividend plays and are also likely to deliver capital gains to their investors over the next few years. We use hedge fund positions in each stock as a proxy for each stock’s potential. Our research has shown that the stocks most favored by hedge funds performed better than the market over the past decade:



No. of hedge funds

Pfizer, Inc.



Johnson & Johnson






Valeant Pharmaceuticals



Teva Pharmaceutical



Merck & Company, Inc.



Abbott Laboratories



Bristol-Myers Squibb



Celgene Corporation



Eli Lilly and Company



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1. Pfizer (PFE): More hedge funds - in fact, 74 - owned Pfizer at the end of September than any other drug stock. PFE fared very well over the past year, returning 28% over the past 52 weeks. Ken Fisher’s Fisher Asset Management owned the most with nearly 22 million shares. Frank Brosens, Jeffrey Tannenbaum and Ric Dillon also had large positions with Pfizer as of the end of September.

2. Johnson & Johnson (JNJ): Fifty-seven hedge funds had interests in JNJ at the end of the third quarter. Johnson & Johnson did well over the past year, returning 10%. Berkshire comes out on top here, with more than 37 million shares, even after the firm decreased its position by 12% during Q3. Ken Fisher’s Fisher Asset Management had more than 10 million shares in JNJ, unchanged since Q2.

3. Sanofi Aventis (SNY): Forty-nine hedge funds had SNY in their portfolios at the end of the third quarter. The stock has returned 18% over 2011. Ken Fisher's Fisher Asset Management had more shares than any other fund, with 14.7 million shares. Up second comes Steven Cohen's SAC Capital Advisors, which had just nearly 14 million shares as of the end of September (check out Steven Cohen’s favorite stocks).

4. Valeant Pharmaceuticals International, Inc. (VRX): Forty-five hedge funds invested in Valeant during the third quarter. They would have fared well if they had more confidence, seeing how Valeant advanced a whopping 64% in 2011. Jeffrey Ubben had far more shares than the other hedge fund we track. The firm reported more than 15 million shares in VRX at the end of Q3. Andreas Halvorsen and John Griffin also had millions of shares in the stock (see John Griffin’s portfolio).

5. Teva Pharmaceutical Industries Limited (TEVA): TEVA is the only loser in this list, dropping 20% so far. Forty-three hedge funds that held the stock in the third quarter might not be happy. Jeffrey Altman’s Owl Creek Asset Management remained 4.86 million shares in its position, unchanged from the previous quarter. John Paulson also had nearly 2 million TEVA shares as of the end of September.

6. Merck (MRK): Forty-two funds had Merck in their portfolios. Among the drug stocks, MRK rebounded in the fourth quarter and managed to beat the S&P in terms of return. It returned 10% over the past 52 weeks, as the S&P advanced 3%. Ric Dillon’s Diamond Hill Capital, John A. Levin’s Levin Capital Strategies, Phill Gross and Robert Atchinson’s Adage Capital Management were among Merck’s large stakeholders.

7. Abbott Laboratories (ABT): Thirty-seven hedge funds owned Abbott at the end of September. Abbott advanced 23% over the most recent 52 weeks. Mason Hawkins’ Southeastern Asset Management boosted its stake last quarter by a whopping 412%, and became Abbott’s biggest hedge funds stakeholder with 11.54 million shares. Ken Fisher’s Fisher Asset Management also had more than 9 million shares in the stock as of the end of September.

8. Bristol Myers Squibb (BMY): BNY fared well, advancing 40% over the past year. Thirty five hedge funds might benefit from that advance. As of the end of September, Jim Simons' Renaissance Technologies owned the most 5.65 million shares – that was after the 21% decrease in Q3 (see billionaire Jim Simons’ new stock picks).

9. Celgene Corporation (CELG): Twenty-five funds had interests in Celgene in the third quarter. The stock advanced 14% over the past year. Celgene’s largest hedge fund stakeholder - Bain Capital’s Brookside Capital – had 3.13 million shares in the third quarter. That figure was after Brookside decreased its position by 54%.

10. Eli Lilly (LLY): Twenty-five funds had LLY in their portfolios in the third quarter. LLY returned 25% this past year. Renaissance was again at the top here by a wide margin. The firm had 7.1 million shares, and that was after a 31% decrease during Q3. The hedge fund with the next highest amount was Elm Ridge Capital, with 1.17 million shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.