Is SNN A Good Stock To Buy Now?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Smith & Nephew plc (NYSE:SNN).

Is SNN a good stock to buy now? Money managers were in a pessimistic mood. The number of bullish hedge fund bets were cut by 2 in recent months. Smith & Nephew plc (NYSE:SNN) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 14. Our calculations also showed that SNN 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). There were 12 hedge funds in our database with SNN holdings at the end of June.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

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 view the new hedge fund action surrounding Smith & Nephew plc (NYSE:SNN).

Do Hedge Funds Think SNN Is A Good Stock To Buy Now?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2020. On the other hand, there were a total of 6 hedge funds with a bullish position in SNN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Smith & Nephew plc (NYSE:SNN). Arrowstreet Capital has a $36.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $5.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism consist of Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel Investment Group and Thyra Zerhusen’s Fairpointe Capital. In terms of the portfolio weights assigned to each position Fairpointe Capital allocated the biggest weight to Smith & Nephew plc (NYSE:SNN), around 0.44% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to SNN.

Due to the fact that Smith & Nephew plc (NYSE:SNN) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers that slashed their entire stakes by the end of the third quarter. At the top of the heap, Krishen Sud’s Sivik Global Healthcare said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $11.6 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund cut about $1.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Smith & Nephew plc (NYSE:SNN) but similarly valued. These stocks are Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Kansas City Southern (NYSE:KSU), CDW Corporation (NASDAQ:CDW), Citrix Systems, Inc. (NASDAQ:CTXS), Fox Corporation (NASDAQ:FOX), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Check Point Software Technologies Ltd. (NASDAQ:CHKP). All of these stocks’ market caps match SNN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HZNP 61 4038716 16
KSU 53 1074081 6
CDW 30 1334920 -10
CTXS 31 643896 -5
FOX 15 579708 -5
ALNY 35 902645 -3
CHKP 27 820557 -1
Average 36 1342075 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1342 million. That figure was $59 million in SNN’s case. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is the most popular stock in this table. On the other hand Fox Corporation (NASDAQ:FOX) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Smith & Nephew plc (NYSE:SNN) is even less popular than FOX. Our overall hedge fund sentiment score for SNN is 24.4. 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. Hedge funds dodged a bullet by taking a bearish stance towards SNN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market again by 16.2 percentage points. Unfortunately SNN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SNN investors were disappointed as the stock returned 5.9% since the end of the third quarter (through 12/8) 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 so far in 2020.

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