Is Covidien plc (NYSE:COV) a buy?
To many traders, hedge funds are perceived as delayed, outdated investment tools of a forgotten age. Although there are more than 8,000 hedge funds trading in present day, Insider Monkey looks at the elite of this group, close to 525 funds. Analysts calculate that this group controls the majority of all hedge funds' total capital, and by watching their highest quality equity investments, we've identified a few investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we've started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).
Equally as necessary, optimistic insider trading activity is a second way to look at the stock market universe. There are a variety of stimuli for an executive to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Several academic studies have demonstrated the valuable potential of this method if investors understand what to do (learn more here).
Furthermore, we're going to examine the recent info surrounding Covidien plc (NYSE:COV).
At Q2's end, a total of 44 of the hedge funds we track were long in this stock, a change of 42% from the first quarter. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially.
As one would understandably expect, specific money managers have been driving this bullishness. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, established the biggest position in Covidien plc (NYSE:COV). First Pacific Advisors LLC had 338.5 million invested in the company at the end of the quarter. Donald Yacktman's Yacktman Asset Management also made a $113.5 million investment in the stock during the quarter. The other funds with brand new COV positions are D. E. Shaw's D E Shaw, Phill Gross and Robert Atchinson's Adage Capital Management, and Mario Gabelli's GAMCO Investors.
Bullish insider trading is particularly usable when the company we're looking at has experienced transactions within the past half-year. Over the last half-year time period, Covidien plc (NYSE:COV) has seen zero unique insiders purchasing, and 10 insider sales (see the details of insider trades here).
We'll also review the relationship between both of these indicators in other stocks similar to Covidien plc (NYSE:COV). These stocks are DENTSPLY International Inc. (NASDAQ:XRAY), CareFusion Corporation (NYSE:CFN), C.R. Bard, Inc. (NYSE:BCR), Becton, Dickinson and Co. (NYSE:BDX), and Baxter International Inc. (NYSE:BAX). This group of stocks are the members of the medical instruments & supplies industry and their market caps are similar to COV's market cap.