Did Hedge Funds Make The Right Call On IDEXX Laboratories, Inc. (IDXX) ?

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 IDEXX Laboratories, Inc. (NASDAQ:IDXX) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is IDEXX Laboratories, Inc. (NASDAQ:IDXX) a buy right now? Prominent investors were getting less bullish. The number of bullish hedge fund positions were trimmed by 6 recently. Our calculations also showed that IDXX 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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

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. Now we’re going to analyze the fresh hedge fund action surrounding IDEXX Laboratories, Inc. (NASDAQ:IDXX).

What does smart money think about IDEXX Laboratories, Inc. (NASDAQ:IDXX)?

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in IDXX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is IDXX A Good Stock To Buy?

Among these funds, Select Equity Group held the most valuable stake in IDEXX Laboratories, Inc. (NASDAQ:IDXX), which was worth $170 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $85.1 million worth of shares. Two Sigma Advisors, GLG Partners, and Rock Springs 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 Brasada Capital Management allocated the biggest weight to IDEXX Laboratories, Inc. (NASDAQ:IDXX), around 1.7% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 1.25 percent of its 13F equity portfolio to IDXX.

Because IDEXX Laboratories, Inc. (NASDAQ:IDXX) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds who were dropping their positions entirely by the end of the first quarter. At the top of the heap, D. E. Shaw’s D E Shaw dumped the biggest stake of the 750 funds tracked by Insider Monkey, worth close to $19 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $6.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to IDEXX Laboratories, Inc. (NASDAQ:IDXX). These stocks are Yum! Brands, Inc. (NYSE:YUM), Johnson Controls International plc (NYSE:JCI), Kellogg Company (NYSE:K), and Waste Connections, Inc. (NYSE:WCN). This group of stocks’ market caps are similar to IDXX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YUM 41 558913 5
JCI 37 1063858 0
K 37 610512 7
WCN 33 464735 -4
Average 37 674505 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $675 million. That figure was $517 million in IDXX’s case. Yum! Brands, Inc. (NYSE:YUM) is the most popular stock in this table. On the other hand Waste Connections, Inc. (NYSE:WCN) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks IDEXX Laboratories, Inc. (NASDAQ:IDXX) is even less popular than WCN. Hedge funds clearly dropped the ball on IDXX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 IDXX as the stock returned 36.3% in 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.