Here’s What Hedge Funds Think About Baker Hughes, a GE company (BHGE)

Is Baker Hughes, a GE company (NYSE:BHGE) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Baker Hughes, a GE company (NYSE:BHGE) has experienced a decrease in enthusiasm from smart money of late. BHGE was in 23 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with BHGE positions at the end of the previous quarter. Our calculations also showed that bhge isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Let’s view the latest hedge fund action encompassing Baker Hughes, a GE company (NYSE:BHGE).

Hedge fund activity in Baker Hughes, a GE company (NYSE:BHGE)

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BHGE over the last 15 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

No of Hedge Funds with BHGE Positions

More specifically, Pzena Investment Management was the largest shareholder of Baker Hughes, a GE company (NYSE:BHGE), with a stake worth $153.6 million reported as of the end of March. Trailing Pzena Investment Management was Two Sigma Advisors, which amassed a stake valued at $77.2 million. Balyasny Asset Management, Millennium Management, and Alyeska Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Baker Hughes, a GE company (NYSE:BHGE) has witnessed falling interest from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes by the end of the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $12.7 million in call options, and Simon Sadler’s Segantii Capital was right behind this move, as the fund cut about $6.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Baker Hughes, a GE company (NYSE:BHGE) but similarly valued. We will take a look at Southwest Airlines Co. (NYSE:LUV), Pinduoduo Inc. (NASDAQ:PDD), IQVIA Holdings, Inc. (NYSE:IQV), and Amphenol Corporation (NYSE:APH). This group of stocks’ market valuations are similar to BHGE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LUV 35 3383550 -5
PDD 32 496446 12
IQV 64 5288724 15
APH 25 518087 4
Average 39 2421702 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $2422 million. That figure was $416 million in BHGE’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand Amphenol Corporation (NYSE:APH) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Baker Hughes, a GE company (NYSE:BHGE) is even less popular than APH. Hedge funds dodged a bullet by taking a bearish stance towards BHGE. Our calculations showed that the top 15 most popular hedge fund stocks returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately BHGE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BHGE investors were disappointed as the stock returned -23% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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