Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of International Business Machines Corp. (NYSE:IBM) based on that data.
Is IBM a good stock to buy now? International Business Machines Corp. (NYSE:IBM) shareholders have witnessed a decrease in hedge fund sentiment lately. International Business Machines Corp. (NYSE:IBM) was in 40 hedge funds’ portfolios at the end of September. The all time high for this statistic is 63. There were 46 hedge funds in our database with IBM holdings at the end of June. Our calculations also showed that IBM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 15 best blue chip stocks to buy 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a peek at the recent hedge fund action regarding International Business Machines Corp. (NYSE:IBM).
Do Hedge Funds Think IBM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in IBM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in International Business Machines Corp. (NYSE:IBM), which was worth $213.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $198.5 million worth of shares. Adage Capital Management, Citadel Investment Group, and Levin Easterly Partners 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 Beddow Capital Management allocated the biggest weight to International Business Machines Corp. (NYSE:IBM), around 4.87% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, setting aside 3.28 percent of its 13F equity portfolio to IBM.
Because International Business Machines Corp. (NYSE:IBM) has faced a decline in interest from the smart money, it’s easy to see that there is a sect of funds who sold off their entire stakes heading into Q4. Intriguingly, Michael Lowenstein’s Kensico Capital dumped the largest position of all the hedgies followed by Insider Monkey, comprising close to $138.3 million in stock. Renaissance Technologies, also sold off its stock, about $55 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 6 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to International Business Machines Corp. (NYSE:IBM). We will take a look at BHP Group (NYSE:BBL), American Tower Corporation (REIT) (NYSE:AMT), Lockheed Martin Corporation (NYSE:LMT), Anheuser-Busch InBev SA/NV (NYSE:BUD), PetroChina Company Limited (NYSE:PTR), Starbucks Corporation (NASDAQ:SBUX), and Royal Bank of Canada (NYSE:RY). This group of stocks’ market values match IBM’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 33 hedge funds with bullish positions and the average amount invested in these stocks was $1649 million. That figure was $639 million in IBM’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. International Business Machines Corp. (NYSE:IBM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IBM is 46.4. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately IBM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IBM were disappointed as the stock returned 3% since the end of September (through 12/14) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.