Did Hedge Funds Make The Right Call On DENTSPLY SIRONA Inc. (XRAY) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards DENTSPLY SIRONA Inc. (NASDAQ:XRAY) at the end of the first quarter and determine whether the smart money was really smart about this stock.

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) investors should be aware of an increase in support from the world’s most elite money managers recently. Our calculations also showed that XRAY 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.

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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to go over the latest hedge fund action encompassing DENTSPLY SIRONA Inc. (NASDAQ:XRAY).

How have hedgies been trading DENTSPLY SIRONA Inc. (NASDAQ:XRAY)?

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in XRAY a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Generation Investment Management held the most valuable stake in DENTSPLY SIRONA Inc. (NASDAQ:XRAY), which was worth $721.7 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $76 million worth of shares. Renaissance Technologies, Citadel Investment Group, and D E Shaw 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 Generation Investment Management allocated the biggest weight to DENTSPLY SIRONA Inc. (NASDAQ:XRAY), around 5.12% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, earmarking 1.71 percent of its 13F equity portfolio to XRAY.

Consequently, key hedge funds have jumped into DENTSPLY SIRONA Inc. (NASDAQ:XRAY) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in DENTSPLY SIRONA Inc. (NASDAQ:XRAY). Arrowstreet Capital had $7.1 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $6.5 million investment in the stock during the quarter. The following funds were also among the new XRAY investors: Benjamin A. Smith’s Laurion Capital Management, Bhagwan Jay Rao’s Integral Health Asset Management, and Greg Eisner’s Engineers Gate Manager.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as DENTSPLY SIRONA Inc. (NASDAQ:XRAY) but similarly valued. These stocks are ViacomCBS Inc. (NASDAQ:VIAC), Regions Financial Corporation (NYSE:RF), Universal Health Services, Inc. (NYSE:UHS), and EXACT Sciences Corporation (NASDAQ:EXAS). This group of stocks’ market values are similar to XRAY’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $537 million. That figure was $997 million in XRAY’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand Universal Health Services, Inc. (NYSE:UHS) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is even less popular than UHS. Hedge funds dodged a bullet by taking a bearish stance towards XRAY. 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 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately XRAY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XRAY investors were disappointed as the stock returned 13.7% during the second quarter 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.

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