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Did Hedge Funds Make The Right Call On Bruker Corporation (BRKR) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Bruker Corporation (NASDAQ:BRKR) and determine whether hedge funds had an edge regarding this stock.

Bruker Corporation (NASDAQ:BRKR) was in 21 hedge funds’ portfolios at the end of March. BRKR investors should be aware of a decrease in hedge fund interest recently. There were 25 hedge funds in our database with BRKR holdings at the end of the previous quarter. Our calculations also showed that BRKR 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).

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

In the financial world there are several methods stock traders employ to size up publicly traded companies. Two of the most useful methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace the broader indices by a superb amount (see the details here).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a look at the latest hedge fund action encompassing Bruker Corporation (NASDAQ:BRKR).

What does smart money think about Bruker Corporation (NASDAQ:BRKR)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in BRKR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Bruker Corporation (NASDAQ:BRKR), which was worth $40.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $20.4 million worth of shares. Renaissance Technologies, AQR Capital Management, and Citadel Investment Group 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 PDT Partners allocated the biggest weight to Bruker Corporation (NASDAQ:BRKR), around 0.3% of its 13F portfolio. McKinley Capital Management is also relatively very bullish on the stock, setting aside 0.27 percent of its 13F equity portfolio to BRKR.

Due to the fact that Bruker Corporation (NASDAQ:BRKR) has experienced a decline in interest from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their positions entirely in the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $5.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $1.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Bruker Corporation (NASDAQ:BRKR) but similarly valued. These stocks are Lumentum Holdings Inc (NASDAQ:LITE), Dolby Laboratories, Inc. (NYSE:DLB), Bausch Health Companies Inc. (NYSE:BHC), and Mohawk Industries, Inc. (NYSE:MHK). This group of stocks’ market caps resemble BRKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LITE 34 487864 -3
DLB 29 374056 -2
BHC 35 1566790 4
MHK 36 585591 -4
Average 33.5 753575 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $110 million in BRKR’s case. Mohawk Industries, Inc. (NYSE:MHK) is the most popular stock in this table. On the other hand Dolby Laboratories, Inc. (NYSE:DLB) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Bruker Corporation (NASDAQ:BRKR) is even less popular than DLB. Hedge funds dodged a bullet by taking a bearish stance towards BRKR. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. Unfortunately BRKR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); BRKR investors were disappointed as the stock returned 23.6% since Q1 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 so far in 2020.

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