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Did Hedge Funds Drop The Ball On Stanley Black & Decker, Inc. (SWK)?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Stanley Black & Decker, Inc. (NYSE:SWK) and determine whether the smart money was really smart about this stock.

Is Stanley Black & Decker, Inc. (NYSE:SWK) a buy right now? Investors who are in the know were selling. The number of bullish hedge fund bets fell by 5 recently. Our calculations also showed that SWK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). SWK was in 36 hedge funds’ portfolios at the end of March. There were 41 hedge funds in our database with SWK holdings at the end of the previous quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the fresh hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).

What have hedge funds been doing with Stanley Black & Decker, Inc. (NYSE:SWK)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SWK over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Stanley Black & Decker, Inc. (NYSE:SWK) was held by Pzena Investment Management, which reported holding $271.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $246.6 million position. Other investors bullish on the company included Marshall Wace LLP, Ariel Investments, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to Stanley Black & Decker, Inc. (NYSE:SWK), around 4.81% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 2.05 percent of its 13F equity portfolio to SWK.

Since Stanley Black & Decker, Inc. (NYSE:SWK) has faced falling interest from the smart money, it’s safe to say that there exists a select few hedgies that decided to sell off their full holdings in the first quarter. Intriguingly, Robert Pohly’s Samlyn Capital dropped the largest position of the 750 funds followed by Insider Monkey, totaling about $27.3 million in stock, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund sold off about $23.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 5 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Stanley Black & Decker, Inc. (NYSE:SWK) but similarly valued. We will take a look at Marathon Petroleum Corp (NYSE:MPC), Check Point Software Technologies Ltd. (NASDAQ:CHKP), IAC/InterActiveCorp (NASDAQ:IAC), and Skyworks Solutions Inc (NASDAQ:SWKS). This group of stocks’ market values are closest to SWK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPC 57 996652 -12
CHKP 29 599085 -1
IAC 57 2692755 -14
SWKS 29 768807 -14
Average 43 1264325 -10.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1264 million. That figure was $908 million in SWK’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Check Point Software Technologies Ltd. (NASDAQ:CHKP) is the least popular one with only 29 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SWK as the stock returned 40.2% during the second quarter and outperformed the market by an even larger margin.

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