Should You Buy Covidien plc (NYSE:COV)?

Is Covidien plc (NYSE:COV) going to take off soon? The smart money is betting on the stock. The number of long hedge fund positions moved up by 7 in recent months.

To the average investor, there are dozens of methods shareholders can use to monitor the equity markets. A couple of the most useful are hedge fund and insider trading movement. At Insider Monkey, our studies have shown that, historically, those who follow the best picks of the elite fund managers can outclass their index-focused peers by a solid amount (see just how much).

Covidien plc (NYSE:COV)Just as important, bullish insider trading activity is another way to parse down the world of equities. As the old adage goes: there are a variety of stimuli for an executive to get rid of shares of his or her company, but just one, very clear reason why they would buy. Various academic studies have demonstrated the valuable potential of this tactic if shareholders understand what to do (learn more here).

Now, we’re going to take a glance at the latest action encompassing Covidien plc (NYSE:COV).

What have hedge funds been doing with Covidien plc (NYSE:COV)?

Heading into 2013, a total of 37 of the hedge funds we track held long positions in this stock, a change of 23% from the previous quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably.

When looking at the hedgies we track, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Covidien plc (NYSE:COV). Arrowstreet Capital has a $312 million position in the stock, comprising 1.6% of its 13F portfolio. On Arrowstreet Capital’s heels is Daniel S. Och of OZ Management, with a $102 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include Donald Yacktman’s Yacktman Asset Management, Jim Simons’s Renaissance Technologies and Jean-Marie Eveillard’s First Eagle Investment Management.

As aggregate interest increased, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Covidien plc (NYSE:COV). Arrowstreet Capital had 312 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $33 million investment in the stock during the quarter. The other funds with brand new COV positions are SAC Subsidiary’s CR Intrinsic Investors, Donald Chiboucis’s Columbus Circle Investors, and Neil Chriss’s Hutchin Hill Capital.

How have insiders been trading Covidien plc (NYSE:COV)?

Bullish insider trading is particularly usable when the company we’re looking at has seen transactions within the past half-year. Over the last 180-day time frame, Covidien plc (NYSE:COV) has seen 1 unique insiders purchasing, and 12 insider sales (see the details of insider trades here).

With the returns demonstrated by the aforementioned strategies, everyday investors must always keep an eye on hedge fund and insider trading sentiment, and Covidien plc (NYSE:COV) applies perfectly to this mantra.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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