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 DENTSPLY SIRONA Inc. (NASDAQ:XRAY) at the end of the second quarter and determine whether the smart money was really smart about this stock.
DENTSPLY SIRONA Inc. (NASDAQ:XRAY) investors should pay attention to a decrease in hedge fund interest recently. DENTSPLY SIRONA Inc. (NASDAQ:XRAY) was in 28 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. Our calculations also showed that XRAY 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.
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 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 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a peek at the new hedge fund action regarding DENTSPLY SIRONA Inc. (NASDAQ:XRAY).
What does smart money think about DENTSPLY SIRONA Inc. (NASDAQ:XRAY)?
At the end of June, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 29 hedge funds with a bullish position in XRAY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the biggest position in DENTSPLY SIRONA Inc. (NASDAQ:XRAY). Generation Investment Management has a $848.8 million position in the stock, comprising 4.9% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $51.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish comprise Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and Robert Joseph Caruso’s Select Equity Group. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to DENTSPLY SIRONA Inc. (NASDAQ:XRAY), around 4.9% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to XRAY.
Since DENTSPLY SIRONA Inc. (NASDAQ:XRAY) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $7.1 million in stock, and Greg Poole’s Echo Street Capital Management was right behind this move, as the fund cut about $6.5 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as DENTSPLY SIRONA Inc. (NASDAQ:XRAY) but similarly valued. We will take a look at Loews Corporation (NYSE:L), DaVita Inc (NYSE:DVA), The AES Corporation (NYSE:AES), CNH Industrial NV (NYSE:CNHI), WPP Plc (NASDAQ:WPP), Live Nation Entertainment, Inc. (NYSE:LYV), and Avery Dennison Corporation (NYSE:AVY). This group of stocks’ market valuations are similar to XRAY’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $858 million. That figure was $1023 million in XRAY’s case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 9 bullish hedge fund positions. DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XRAY is 55.6. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately XRAY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XRAY were disappointed as the stock returned -1.3% 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.