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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Science Applications International Corp (NYSE:SAIC) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Science Applications International Corp (NYSE:SAIC) a marvelous stock to buy now? Prominent investors were taking an optimistic view. The number of long hedge fund positions moved up by 1 lately. Science Applications International Corp (NYSE:SAIC) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SAIC 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). There were 34 hedge funds in our database with SAIC positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to go over the fresh hedge fund action regarding Science Applications International Corp (NYSE:SAIC).
How are hedge funds trading Science Applications International Corp (NYSE:SAIC)?
Heading into the third quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SAIC over the last 20 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in Science Applications International Corp (NYSE:SAIC), worth close to $71.2 million, amounting to 0.2% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $67.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Jeffrey Jacobowitz’s Simcoe Capital Management, Dmitry Balyasny’s Balyasny Asset Management and Will Cook’s Sunriver Management. 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 14.25% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, dishing out 6.24 percent of its 13F equity portfolio to SAIC.
As one would reasonably expect, key money managers were breaking ground themselves. Paloma Partners, managed by Donald Sussman, created the most valuable position in Science Applications International Corp (NYSE:SAIC). Paloma Partners had $7.5 million invested in the company at the end of the quarter. Arnaud Ajdler’s Engine Capital also initiated a $5.3 million position during the quarter. The following funds were also among the new SAIC investors: Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Paul Tudor Jones’s Tudor Investment Corp, and Jinghua Yan’s TwinBeech Capital.
Let’s check out 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 Haemonetics Corporation (NYSE:HAE), MyoKardia, Inc. (NASDAQ:MYOK), TCF Financial Corporation (NYSE:TCF), Western Midstream Partners, LP (NYSE:WES), Life Storage, Inc. (NYSE:LSI), Descartes Systems Group (NASDAQ:DSGX), and Vertiv Holdings Co (NYSE:VRT). This group of stocks’ market values resemble SAIC’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $449 million in SAIC’s case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Descartes Systems Group (NASDAQ:DSGX) is the least popular one with only 10 bullish hedge fund positions. Science Applications International Corp (NYSE:SAIC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAIC is 71.7. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 23.2 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 8% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.