How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Honeywell International Inc. (NYSE:HON).
Is HON stock a buy or sell? Honeywell International Inc. (NYSE:HON) shareholders have witnessed an increase in enthusiasm from smart money lately. Honeywell International Inc. (NYSE:HON) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic is 58. There were 41 hedge funds in our database with HON holdings at the end of September. Our calculations also showed that HON isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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 leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 homepage (or at the end of this article). Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding Honeywell International Inc. (NYSE:HON).
Do Hedge Funds Think HON Is A Good Stock To Buy Now?
At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in HON over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in Honeywell International Inc. (NYSE:HON), which was worth $243.9 million at the end of the fourth quarter. On the second spot was GAMCO Investors which amassed $92.9 million worth of shares. Millennium Management, Adage Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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 8.39% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, designating 7.86 percent of its 13F equity portfolio to HON.
Consequently, key hedge funds have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, initiated the largest position in Honeywell International Inc. (NYSE:HON). Scopus Asset Management had $26.8 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also made a $14.8 million investment in the stock during the quarter. The following funds were also among the new HON investors: Michael Gelband’s ExodusPoint Capital, Anand More’s SAYA Management, and Catherine D. Wood’s ARK Investment Management.
Let’s now take a look at hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). These stocks are United Parcel Service, Inc. (NYSE:UPS), Union Pacific Corporation (NYSE:UNP), Bristol Myers Squibb Company (NYSE:BMY), Linde plc (NYSE:LIN), Shopify Inc (NYSE:SHOP), Anheuser-Busch InBev SA/NV (NYSE:BUD), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market values are closest to HON’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 70.6 hedge funds with bullish positions and the average amount invested in these stocks was $5607 million. That figure was $984 million in HON’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) 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. Our overall hedge fund sentiment score for HON is 44.2. 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 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 HON wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); HON investors were disappointed as the stock returned 0.5% 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.