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Hedge Funds Never Been Less Bullish On Honeywell International Inc. (HON)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Honeywell International Inc. (NYSE:HON).

Honeywell International Inc. (NYSE:HON) was in 44 hedge funds’ portfolios at the end of the first quarter of 2020. HON investors should be aware of a decrease in support from the world’s most elite money managers recently. There were 55 hedge funds in our database with HON positions at the end of the previous quarter. Our calculations also showed that HON isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 44 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.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the key hedge fund action surrounding Honeywell International Inc. (NYSE:HON).

Hedge fund activity in Honeywell International Inc. (NYSE:HON)

At the end of the first quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HON over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Honeywell International Inc. (NYSE:HON) was held by D E Shaw, which reported holding $259.3 million worth of stock at the end of September. It was followed by Adage Capital Management with a $193.9 million position. Other investors bullish on the company included Diamond Hill Capital, Two Sigma Advisors, and GAMCO Investors. 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 11.52% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, dishing out 3.52 percent of its 13F equity portfolio to HON.

Seeing as Honeywell International Inc. (NYSE:HON) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that decided to sell off their entire stakes heading into Q4. Intriguingly, Brandon Haley’s Holocene Advisors cut the biggest stake of the 750 funds followed by Insider Monkey, valued at about $106.8 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also cut its stock, about $99.8 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 11 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Honeywell International Inc. (NYSE:HON) but similarly valued. We will take a look at Gilead Sciences, Inc. (NASDAQ:GILD), Texas Instruments Incorporated (NASDAQ:TXN), BHP Group (NYSE:BHP), and Linde plc (NYSE:LIN). This group of stocks’ market caps match HON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GILD 76 2832662 9
TXN 46 1744576 -4
BHP 18 460616 -2
LIN 53 3350656 6
Average 48.25 2097128 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $2097 million. That figure was $1215 million in HON’s case. Gilead Sciences, Inc. (NASDAQ:GILD) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately HON wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HON investors were disappointed as the stock returned 4.8% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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