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Baker Hughes Company (BKR): Hedge Funds Caught Flat-Footed

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards 0.

Is 0 a buy, sell, or hold? The smart money is becoming more confident. The number of bullish hedge fund bets rose by 3 in recent months. Our calculations also showed that BKR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the recent hedge fund action regarding 0.

How have hedgies been trading Baker Hughes Company (NYSE:BKR)?

Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BKR over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is BKR A Good Stock To Buy?

The largest stake in Baker Hughes Company (NYSE:BKR) was held by Pzena Investment Management, which reported holding $258.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $63.9 million position. Other investors bullish on the company included Millennium Management, Point72 Asset Management, and Deep Basin Capital. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Baker Hughes Company (NYSE:BKR), around 2.74% of its 13F portfolio. Islet Management is also relatively very bullish on the stock, earmarking 2.19 percent of its 13F equity portfolio to BKR.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, created the largest position in Baker Hughes Company (NYSE:BKR). Alyeska Investment Group had $7.5 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $2.2 million position during the quarter. The other funds with new positions in the stock are Mark Broach’s Manatuck Hill Partners, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Philippe Laffont’s Coatue Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Baker Hughes Company (NYSE:BKR) but similarly valued. We will take a look at FirstEnergy Corp. (NYSE:FE), Spotify Technology S.A. (NYSE:SPOT), Centene Corporation (NYSE:CNC), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). This group of stocks’ market valuations resemble BKR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FE 40 1419463 5
SPOT 38 1558227 -2
CNC 62 3049441 3
WLTW 35 1952657 -4
Average 43.75 1994947 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.75 hedge funds with bullish positions and the average amount invested in these stocks was $1995 million. That figure was $573 million in BKR’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the least popular one with only 35 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately BKR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BKR investors were disappointed as the stock returned -50% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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