Ghost Tree Capital is a healthcare-oriented hedge fund headquartered in New York. It was founded in 2013 by David Kim who is the portfolio manager, Ken Greenberg and Brian Kim (Senior Analysts), and Matt Diaz (trader). Ghost Tree Capital team formerly worked at Richard Schimel‘s Diamondback Capital. David Kim also worked as a portfolio manager at Ken Griffin‘s Citadel Investment Group. With almost 90% of its equity portfolio (valued at approximately $162 million) allocated to the healthcare industry, “the firm’s strategy is focused on driving strong absolute returns, independent of market cycles, based on fundamental primary research and disciplined financial analysis” (Ghost Tree).
Many hedge funds have been filing their 13Fs for the fourth quarter of 2013 lately. In these forms, they disclose most of their long equity positions as of the end of December. Although the portfolio information is a few weeks old, there are still a few ways for investors to use it.
In this article, we will briefly look into the equity portfolio of Ken Greenberg and David Kim’s Ghost Tree Capital by the end of the fourth quarter (this was the first time that the fund reported its equity portfolio at the U.S. Securities and Exchange Commission). Although its most valuable holdings are mostly comprised by call and put options at several companies –including Allergan Inc. (NYSE:AGN) and Gilead Sciences Inc. (NASDAQ:GILD), we will focus on its long stock positions.
The fund has placed its largest bet on Gilead Sciences Inc. (NASDAQ:GILD), a $128 billion market cap research-based biopharmaceutical company that discovers, develops and commercializes new medicines for different medical sectors. Kim and Greenberg’s fund owned 135,000 shares of the company by Dec. 31st 2013, valued at roughly $11.3 million –which comprises about 6.2% of its equity portfolio. Including ‘Put’ and ‘Call’ options, the percentage of its portfolio invested in Gilead raises to roughly 14%.
This investment certainly makes sense, especially given the company’s industry leading margins and returns, low debt levels and amazing growth prospects (analysts expect it to deliver average annual EPS growth rates around 36% over the next five years). With a privileged position in the HIV and hepatitis C markets, this stock looks like a safe bet. In addition, it trades at a substantial discount in relation to its peers; at 46 times the company’s earnings, versus an industry average valuation of 75x P/E. Moreover, the stock is already up more than 10% since their purchases. Even further, several other major hedge funds, including Julian Robertson’s Tiger Management, which holds 320,000 shares, up by 26% over Q4, and Lee Munder’s Lee Munder Capital Group, also seem to feel quite bullish on this company.
Ghost Tree’s second largest long position is in Bristol-Myers Squibb Co (NYSE:BMY), a biopharmaceutical company with a market cap of $88.9 billion. The fund owns 100,000 shares of the company, valued at $5.4 million. Comprising 3.2% of its portfolio, this holding is the fund’s seventh most valuable one. Despite Ghost Tree’s bullishness, opinion among funds and analysts is quite divided in relation to Bristol-Myers Squibb Co (NYSE:BMY). Some feel encouraged by decent growth projections, a strong portfolio of drugs, a robust pipeline, a wide economic moat –mainly supported by its patent holdings and pipeline, and a 2.69% dividend yield. Amongst them we can find Christopher Medlock’s Partner Fund Management, which holds 7.5 million shares, and Alex Denner’s Sarissa Capital Management.
Others, instead, would rather hold on this stock, mainly in account of the company’s below average margins and returns, valuation at 34x P/E (double its industry´s average), high debt levels, and important patent losses that will continue through 2017. In this group of bears, I would like to highlight Jim Simons, who sold out 99% of his stakes in the company during the fourth quarter, amongst several others who closed out or significantly reduced their positions.
The fund’s top 10 list is completed by Biogen Idec Inc (NASDAQ:BIIB) and The Spectranetics Corporation (NASDAQ:SPNC), two healthcare tech companies. Each of these holdings are worth more than $4 million, and comprise, combined, about 5.5% of Ghost Tree’s portfolio.
No doubt about it, Ken Greenberg and David Kim’s bets are placed on the healthcare segment. Are their choices good enough for you too?
Disclosure: Javier Hasse holds no position in any stocks mentioned.
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