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Hedge Funds Have Never Been This Bullish On Medtronic plc (MDT)

Is Medtronic plc (NYSE:MDT) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Medtronic plc (NYSE:MDT) a safe investment today? Investors who are in the know are becoming hopeful. The number of bullish hedge fund bets went up by 10 lately. Our calculations also showed that MDT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the new hedge fund action encompassing Medtronic plc (NYSE:MDT).

How have hedgies been trading Medtronic plc (NYSE:MDT)?

Heading into the first quarter of 2020, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 55 hedge funds with a bullish position in MDT a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is MDT A Good Stock To Buy?

The largest stake in Medtronic plc (NYSE:MDT) was held by Diamond Hill Capital, which reported holding $414.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $324 million position. Other investors bullish on the company included Citadel Investment Group, Holocene Advisors, and Adage Capital Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 10.02% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 4.64 percent of its 13F equity portfolio to MDT.

Consequently, some big names were leading the bulls’ herd. Sirios Capital Management, managed by John Brennan, initiated the most outsized position in Medtronic plc (NYSE:MDT). Sirios Capital Management had $59.3 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also made a $12.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Bhagwan Jay Rao’s Integral Health Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks similar to Medtronic plc (NYSE:MDT). These stocks are Unilever N.V. (NYSE:UN), Bristol Myers Squibb Company (NYSE:BMY), Unilever plc (NYSE:UL), and McDonald’s Corporation (NYSE:MCD). This group of stocks’ market values are similar to MDT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UN 15 1009132 -2
BMY 122 7810013 61
UL 17 247925 2
MCD 57 1633049 5
Average 52.75 2675030 16.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.75 hedge funds with bullish positions and the average amount invested in these stocks was $2675 million. That figure was $2501 million in MDT’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Unilever N.V. (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately MDT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MDT were disappointed as the stock returned -9.5% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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