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Hedge Funds Are Buying Honeywell International Inc. (HON)

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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Honeywell International Inc. (NYSE:HON) and determine whether the smart money was really smart about this stock.

Honeywell International Inc. (NYSE:HON) investors should pay attention to an increase in hedge fund sentiment of late. Honeywell International Inc. (NYSE:HON) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistics is 53. Our calculations also showed that HON isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Mario Gabelli of GAMCO Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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 let’s take a look at the latest hedge fund action surrounding Honeywell International Inc. (NYSE:HON).

What does smart money think about Honeywell International Inc. (NYSE:HON)?

Heading into the third quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HON over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, D E Shaw held the most valuable stake in Honeywell International Inc. (NYSE:HON), which was worth $290.3 million at the end of the third quarter. On the second spot was Millennium Management which amassed $182.9 million worth of shares. Diamond Hill Capital, Two Sigma Advisors, and GAMCO Investors 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 Pittencrieff Partners – Gabalex Capital allocated the biggest weight to Honeywell International Inc. (NYSE:HON), around 8.19% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, dishing out 3.9 percent of its 13F equity portfolio to HON.

As one would reasonably expect, key money managers were leading the bulls’ herd. Sandbar Asset Management, managed by Michael Cowley, created the largest position in Honeywell International Inc. (NYSE:HON). Sandbar Asset Management had $6.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $5.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Seth Cogswell’s Running Oak Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). These stocks are TOTAL SE (NYSE:TOT), Gilead Sciences, Inc. (NASDAQ:GILD), Royal Bank of Canada (NYSE:RY), United Parcel Service, Inc. (NYSE:UPS), Anheuser-Busch InBev SA/NV (NYSE:BUD), HSBC Holdings plc (NYSE:HSBC), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market valuations match HON’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOT 19 861496 7
GILD 68 2286230 -8
RY 16 237643 0
UPS 37 781926 -11
BUD 17 860874 0
HSBC 10 384518 -4
JD 87 11211241 -3
Average 36.3 2374847 -2.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $2375 million. That figure was $1448 million in HON’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 10 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HON is 64.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on HON, though not to the same extent, as the stock returned 15.1% since the end of June and outperformed the market as well.

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