Hedge Funds Are Selling Stanley Black & Decker, Inc. (SWK)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Stanley Black & Decker, Inc. (NYSE:SWK) to find out whether there were any major changes in hedge funds’ views.

Stanley Black & Decker, Inc. (NYSE:SWK) shareholders have witnessed a decrease in hedge fund sentiment recently. Stanley Black & Decker, Inc. (NYSE:SWK) was in 33 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 41. Our calculations also showed that SWK isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the new hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).

Do Hedge Funds Think SWK Is A Good Stock To Buy Now?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in SWK a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Stanley Black & Decker, Inc. (NYSE:SWK), which was worth $203.5 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $99.9 million worth of shares. Renaissance Technologies, Marshall Wace LLP, 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 North Fourth Asset Management allocated the biggest weight to Stanley Black & Decker, Inc. (NYSE:SWK), around 2.02% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, earmarking 1.84 percent of its 13F equity portfolio to SWK.

Seeing as Stanley Black & Decker, Inc. (NYSE:SWK) has faced declining sentiment from the smart money, logic holds that there exists a select few fund managers who sold off their positions entirely last quarter. It’s worth mentioning that Dan Loeb’s Third Point cut the largest stake of the 750 funds watched by Insider Monkey, totaling an estimated $146 million in stock. Andrew Weiss’s fund, Weiss Asset Management, also sold off its stock, about $23.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 5 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Stanley Black & Decker, Inc. (NYSE:SWK) but similarly valued. These stocks are D.R. Horton, Inc. (NYSE:DHI), CoStar Group Inc (NASDAQ:CSGP), TAL Education Group (NYSE:TAL), PACCAR Inc (NASDAQ:PCAR), TransDigm Group Incorporated (NYSE:TDG), Brown-Forman Corporation (NYSE:BF), and Suncor Energy Inc. (NYSE:SU). This group of stocks’ market caps match SWK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DHI 50 2174422 -14
CSGP 43 2784728 -8
TAL 38 1373412 9
PCAR 28 626282 -6
TDG 62 6290864 -2
BF 35 1477271 6
SU 33 1047702 8
Average 41.3 2253526 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.3 hedge funds with bullish positions and the average amount invested in these stocks was $2254 million. That figure was $993 million in SWK’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 28 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SWK is 31.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately SWK wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SWK investors were disappointed as the stock returned 4.5% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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