Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Baxter International Inc. (NYSE:BAX)? The smart money sentiment can provide an answer to this question.
Is BAX stock a buy or sell? The smart money was taking a pessimistic view. The number of long hedge fund bets decreased by 9 lately. Baxter International Inc. (NYSE:BAX) was in 42 hedge funds’ portfolios at the end of December. The all time high for this statistic is 59. Our calculations also showed that BAX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 51 hedge funds in our database with BAX holdings at the end of September.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. With all of this in mind let’s check out the latest hedge fund action encompassing Baxter International Inc. (NYSE:BAX).
Do Hedge Funds Think BAX Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BAX over the last 22 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Baxter International Inc. (NYSE:BAX) was held by Generation Investment Management, which reported holding $1398.1 million worth of stock at the end of December. It was followed by D E Shaw with a $320 million position. Other investors bullish on the company included Two Sigma Advisors, Arrowstreet Capital, and D1 Capital Partners. In terms of the portfolio weights assigned to each position Tri Locum Partners allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 8.7% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, designating 6.24 percent of its 13F equity portfolio to BAX.
Judging by the fact that Baxter International Inc. (NYSE:BAX) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers who sold off their entire stakes last quarter. At the top of the heap, Stephen J. Errico’s Locust Wood Capital Advisers cut the largest stake of all the hedgies monitored by Insider Monkey, worth close to $38.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $34.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Baxter International Inc. (NYSE:BAX) but similarly valued. We will take a look at CNOOC Limited (NYSE:CEO), Pinterest, Inc. (NYSE:PINS), Thomson Reuters Corporation (NYSE:TRI), Barrick Gold Corporation (NYSE:GOLD), Public Storage (NYSE:PSA), Match Group, Inc. (NASDAQ:MTCH), and Rocket Companies, Inc. (NYSE:RKT). This group of stocks’ market values are closest to BAX’s market value.
|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 43.3 hedge funds with bullish positions and the average amount invested in these stocks was $1885 million. That figure was $2802 million in BAX’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Baxter International Inc. (NYSE:BAX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BAX is 35. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and surpassed the market again by 0.8 percentage points. Unfortunately BAX wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); BAX investors were disappointed as the stock returned 0.4% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.