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Baker Hughes Company (BKR) Fell Out Of Favor With Hedge Funds

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Baker Hughes Company (NYSE:BKR) and determine whether hedge funds skillfully traded this stock.

Is Baker Hughes Company (NYSE:BKR) a buy here? The best stock pickers were getting less bullish. The number of long hedge fund bets retreated by 3 in recent months. Baker Hughes Company (NYSE:BKR) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. Our calculations also showed that BKR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 30 hedge funds in our database with BKR holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a lot of indicators stock traders employ to assess stocks. A couple of the most underrated indicators are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outpace the market by a very impressive margin (see the details here).

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a look at the fresh hedge fund action surrounding Baker Hughes Company (NYSE:BKR).

What does smart money think about Baker Hughes Company (NYSE:BKR)?

At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BKR over the last 20 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Baker Hughes Company (NYSE:BKR), which was worth $286.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $18.3 million worth of shares. Slate Path Capital, Two Sigma Advisors, and SIR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position AltraVue Capital allocated the biggest weight to Baker Hughes Company (NYSE:BKR), around 4.69% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 2.49 percent of its 13F equity portfolio to BKR.

Because Baker Hughes Company (NYSE:BKR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their entire stakes by the end of the second quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $11.4 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund sold off about $10 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Baker Hughes Company (NYSE:BKR). These stocks are Agnico Eagle Mines Limited (NYSE:AEM), ORIX Corporation (NYSE:IX), Trip.com Group Limited (NASDAQ:TCOM), Invitation Homes Inc. (NYSE:INVH), Check Point Software Technologies Ltd. (NASDAQ:CHKP), Discover Financial Services (NYSE:DFS), and Vulcan Materials Company (NYSE:VMC). This group of stocks’ market valuations are closest to BKR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEM 30 594031 5
IX 4 3765 0
TCOM 29 1235313 -2
INVH 33 694166 6
CHKP 28 725079 -1
DFS 44 740724 4
VMC 51 879902 2
Average 31.3 696140 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $404 million in BKR’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Baker Hughes Company (NYSE:BKR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BKR is 48.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately BKR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BKR investors were disappointed as the stock returned -13.8% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.