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 Stryker Corporation (NYSE:SYK) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Stryker Corporation (NYSE:SYK) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Stryker Corporation (NYSE:SYK) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistics is 72. There were 48 hedge funds in our database with SYK positions at the end of the first quarter. Our calculations also showed that SYK 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.
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. 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.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a glance at the new hedge fund action surrounding Stryker Corporation (NYSE:SYK).
What does smart money think about Stryker Corporation (NYSE:SYK)?
Heading into the third quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SYK over the last 20 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 Stryker Corporation (NYSE:SYK) was held by Fisher Asset Management, which reported holding $428.7 million worth of stock at the end of September. It was followed by BlueSpruce Investments with a $308.1 million position. Other investors bullish on the company included Steadfast Capital Management, Adage Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position BlueSpruce Investments allocated the biggest weight to Stryker Corporation (NYSE:SYK), around 8.9% of its 13F portfolio. Blue Whale Capital is also relatively very bullish on the stock, dishing out 6.06 percent of its 13F equity portfolio to SYK.
As aggregate interest increased, specific money managers have been driving this bullishness. Steadfast Capital Management, managed by Robert Pitts, established the most outsized position in Stryker Corporation (NYSE:SYK). Steadfast Capital Management had $93.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $10.4 million investment in the stock during the quarter. The following funds were also among the new SYK investors: Seth Cogswell’s Running Oak Capital, Brandon Haley’s Holocene Advisors, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Stryker Corporation (NYSE:SYK) but similarly valued. These stocks are Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), Fiserv, Inc. (NASDAQ:FISV), Booking Holdings Inc. (NASDAQ:BKNG), Zoetis Inc (NYSE:ZTS), VMware, Inc. (NYSE:VMW), and Automatic Data Processing (NASDAQ:ADP). This group of stocks’ market valuations resemble SYK’s market valuation.
|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 63.1 hedge funds with bullish positions and the average amount invested in these stocks was $2918 million. That figure was $1257 million in SYK’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 42 bullish hedge fund positions. Stryker Corporation (NYSE:SYK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYK is 35.2. 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 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 surpassed the market by 23.2 percentage points. Unfortunately SYK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SYK investors were disappointed as the stock returned 9.9% since Q2 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.