In this article you are going to find out whether hedge funds think SAP SE (NYSE:SAP) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is SAP a good stock to buy now? SAP SE (NYSE:SAP) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of September. Our calculations also showed that SAP 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). At the end of this article we will also compare SAP to other stocks including Toyota Motor Corporation (NYSE:TM), Oracle Corporation (NYSE:ORCL), and Thermo Fisher Scientific Inc. (NYSE:TMO) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let’s review the fresh hedge fund action surrounding SAP SE (NYSE:SAP).
Do Hedge Funds Think SAP Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in SAP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in SAP SE (NYSE:SAP), worth close to $1.2656 billion, accounting for 1.1% of its total 13F portfolio. Sitting at the No. 2 spot is Rajiv Jain of GQG Partners, with a $453.4 million position; 1.6% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to SAP SE (NYSE:SAP), around 5.43% of its 13F portfolio. Lunia Capital is also relatively very bullish on the stock, earmarking 2.13 percent of its 13F equity portfolio to SAP.
Because SAP SE (NYSE:SAP) has witnessed a decline in interest from the smart money, it’s easy to see that there were a few hedgies who sold off their entire stakes last quarter. It’s worth mentioning that Leon Shaulov’s Maplelane Capital sold off the largest stake of the 750 funds monitored by Insider Monkey, totaling about $4.6 million in stock. D. E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $1.8 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to SAP SE (NYSE:SAP). These stocks are Toyota Motor Corporation (NYSE:TM), Oracle Corporation (NYSE:ORCL), Thermo Fisher Scientific Inc. (NYSE:TMO), Cisco Systems, Inc. (NASDAQ:CSCO), McDonald’s Corporation (NYSE:MCD), Novo Nordisk A/S (NYSE:NVO), and Unilever PLC (NYSE:UL). This group of stocks’ market valuations are closest to SAP’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 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $2553 million. That figure was $1806 million in SAP’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 12 bullish hedge fund positions. SAP SE (NYSE:SAP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SAP is 31.9. 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 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 surpassed the market again by 15.8 percentage points. Unfortunately SAP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SAP investors were disappointed as the stock returned -22.1% 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.