This has been a wild year for Wall Street. The unprecedented coronavirus disease 2019 (COVID-19) pandemic initially pushed equities to their fastest and steepest bear market decline in history, with the S&P 500 losing 34% of its value in under five weeks. This was followed by a record-breaking rally that took less than five months to gain everything that was lost back.
Deciding where to invest has been challenging for most investors in 2020; however, healthcare has made for an intriguing choice.
High-profile money managers piled into these healthcare stocks during the second quarter
You see, healthcare stocks are highly defensive investments. No matter how well or poorly the U.S. economy is performing, people continue to get sick, which means demand for pharmaceuticals, medical devices, healthcare software, and so on, remains relatively steady. This makes healthcare stocks a popular choice during periods of heightened volatility.
The big question is, what have top-tier money managers been buying in the healthcare space?
A little over a week ago (Aug. 14) marked the deadline for money managers with more than $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what top-tier money managers were holding as of the end of the most recent quarter (in this case, June 30). It also allows us to see what billionaire money managers were specifically buying and selling during one of the most volatile quarters on record.
Below, you'll see three healthcare stocks that billionaire money managers simply wouldn't stop buying during the second quarter.
Perhaps unsurprisingly, one of the most popular stocks in Q2 among high-profile money managers is clinical-stage drug developer Moderna (NASDAQ:MRNA). Larry Fink's BlackRock purchased nearly 7.5 million shares during the quarter, while Jim Simons' Renaissance Technologies and Jeff Yass' Susquehanna International bought 315,400 shares and 268,354 shares, respectively. Overall, 13F filers boosted their collective stake in Moderna by 12.1% from the sequential first quarter to 217 million shares.
Though it's unusual for clinical-stage drugmakers to get so much attention from big-money investors, it's not so crazy when you realize that Moderna is a key player in developing a COVID-19 vaccine.
Moderna's experimental coronavirus vaccine (mRNA-1273) was the first to be tested on humans in phase 1 trials. In mid-July, Moderna reported generally positive results from that initial safety and dosing study, with no observable severe adverse events through 57 days, and each of the 45 patients in the study having some level of neutralizing antibodies. Moderna has since begun enrollment on a 30,000-person phase 3 study, which began on July 27.
What's more, Moderna has some serious cash backing. It's received a whopping $955 million from the federal government via Operation Warp Speed -- a public-private partnership that aims to expedite the development, manufacturing, and distribution of COVID-19 vaccines -- and nabbed a 100-million-dose deal worth $1.53 billion from the federal government just over two weeks ago, with an option for the federal government to purchase an additional 400 million doses. Moderna also sold $1.34 billion worth of stock in mid-May, so the company is absolutely swimming in cash.
Though it remains to be seen if Moderna can deliver a winning vaccine, it has a lot of Wall Street's top investors crossing their fingers.
Another healthcare stock that had the word "buy" stamped all over it during the second quarter is highflier Livongo Health (NASDAQ:LVGO). BlackRock and Susquehanna International both added to their existing stakes in Livongo during Q2 -- 682,458 shares for BlackRock and 659,326 shares for Susquehanna -- with aggregate ownership from 13F filers in Livongo rising by 10.5% to 41.8 million shares.
The allure of Livongo continues to be its insanely high growth rate coupled with the fact that it's just scratching the surface with its healthcare solutions. Livongo aggregates copious amounts of patient data for persons with chronic diseases, then uses artificial intelligence as an aid to send tips and nudges to its members to induce long-lasting behavioral changes. In other words, it's helping chronically ill patients stay on top of their disease and live healthier.
For the past couple of years, Livongo Health has at least doubled its year-over-year count of Diabetes members enrolled, and the company has turned in three consecutive quarterly profits despite only having penetrated 1.2% of the U.S. diabetes market. Livongo has more than 410,000 Diabetes members, relative to 34.2 million diabetics in the United States.
Perhaps just as exciting is the pending merger of Livongo Health with telemedicine giant Teladoc Health (NYSE:TDOC). Although the cash-and-stock deal with Teladoc is going to push the combined company into the red for a bit, the merger of Teladoc and Livongo will create a telemedicine/applied health combination that'll be on the leading edge of the innovative curve in the healthcare sector.
Billionaire investors also couldn't get enough of drug developer Regeneron Pharmaceuticals (NASDAQ:REGN) during the second quarter. BlackRock and Renaissance Technologies added 3.19 million shares and nearly 403,000 shares, respectively, with aggregate 13F filers increasing their holdings in the company by 22% from the sequential first quarter to 91.4 million shares.
Sticking with the theme driving interest in Moderna, Regeneron is viewed as one of a handful of drug developers with a good shot to develop a COVID-19 vaccine. Regeneron's solution is REGN-COV2, a two-antibody drug cocktail that binds with the spike protein found on the SARS-CoV2 virus, which is what causes the COVID-19 illness. By binding with these spikes, it stops the virus from invading healthy cells and evading detection by the immune system.
An independent data monitoring committee has already given Regeneron a positive review regarding the safety of its two-antibody cocktail in a 30-patient phase 1 study, thereby allowing Regeneron to move onto its adaptive phase 2/3 clinical trial.
Furthermore, Regeneron and Roche (OTC:RHHBY) hashed out an agreement last week to increase the development, manufacturing, and distribution of REGN-COV2. Under the agreement, Regeneron will handle distribution of its cocktail drug in the U.S. and Roche will take responsibility for distribution elsewhere. With Roche being one of the largest drug developers in the world, having its support adds validation to Regeneron's experimental COVID-19 therapy.
As one last note, Regeneron has a successful channel of approved therapies to fall back on if REGN-COV2 isn't successful, with age-related macular degeneration drug Eylea generating $7.5 billion in annual sales in 2019. Thus, billionaire money managers know their bets are somewhat hedged with Regeneron, which isn't necessarily the case with Moderna.