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Did Hedge Funds Make The Right Call On Science Applications International Corp (SAIC) ?

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 Science Applications International Corp (NYSE:SAIC) and determine whether hedge funds had an edge regarding this stock.

Science Applications International Corp (NYSE:SAIC) was in 34 hedge funds’ portfolios at the end of March. SAIC shareholders have witnessed an increase in hedge fund sentiment of late. There were 27 hedge funds in our database with SAIC positions at the end of the previous quarter. Our calculations also showed that SAIC 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

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. With all of this in mind let’s view the key hedge fund action encompassing Science Applications International Corp (NYSE:SAIC).

How are hedge funds trading Science Applications International Corp (NYSE:SAIC)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in SAIC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Science Applications International Corp (NYSE:SAIC), which was worth $73.9 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $40.8 million worth of shares. Horizon Asset Management, Simcoe Capital Management, and Balyasny Asset 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 Simcoe Capital Management allocated the biggest weight to Science Applications International Corp (NYSE:SAIC), around 10.95% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, designating 4.92 percent of its 13F equity portfolio to SAIC.

Consequently, some big names were breaking ground themselves. Sunriver Management, managed by Will Cook, created the biggest position in Science Applications International Corp (NYSE:SAIC). Sunriver Management had $28.1 million invested in the company at the end of the quarter. Andrew Wellington and Jeff Keswin’s Lyrical Asset Management also initiated a $17.7 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, Ira Unschuld’s Brant Point Investment Management, and Mike Vranos’s Ellington.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Science Applications International Corp (NYSE:SAIC) but similarly valued. These stocks are JOYY Inc. (NASDAQ:YY), LPL Financial Holdings Inc (NASDAQ:LPLA), Cousins Properties Incorporated (NYSE:CUZ), and Signature Bank (NASDAQ:SBNY). This group of stocks’ market caps are similar to SAIC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YY 15 209246 -8
LPLA 33 747511 -8
CUZ 22 76929 10
SBNY 19 262247 -2
Average 22.25 323983 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $372 million in SAIC’s case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand JOYY Inc. (NASDAQ:YY) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Science Applications International Corp (NYSE:SAIC) is more popular among hedge funds. 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. Unfortunately SAIC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SAIC were disappointed as the stock returned 4.6% 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 in 2020.

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