Is Stanley Black & Decker, Inc. (SWK) Going to Burn These Hedge Funds?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Stanley Black & Decker, Inc. (NYSE:SWK) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of the third quarter of 2016. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as HCP, Inc. (NYSE:HCP), Molson Coors Brewing Company (NYSE:TAP), and Ingersoll-Rand PLC (NYSE:IR) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading Stanley Black & Decker, Inc. (NYSE:SWK)?

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, same as in the second quarter of 2016. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the largest position in Stanley Black & Decker, Inc. (NYSE:SWK). Pzena Investment Management has a $222.8 million position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $139.6 million position. Other professional money managers that hold long positions consist of John W. Rogers’ Ariel Investments, Phill Gross and Robert Atchinson’s Adage Capital Management and Jim Simons’ Renaissance Technologies.

Because Stanley Black & Decker, Inc. (NYSE:SWK) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there is a sect of funds that decided to sell off their entire stakes last quarter. Intriguingly, Ken Griffin’s Citadel Investment Group said goodbye to the biggest investment of the 700 funds followed by Insider Monkey, comprising about $30.5 million in stock, and Mark Kingdon’s Kingdon Capital was right behind this move, as the fund sold off about $10.6 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Stanley Black & Decker, Inc. (NYSE:SWK). These stocks are HCP, Inc. (NYSE:HCP), Molson Coors Brewing Company (NYSE:TAP), Ingersoll-Rand PLC (NYSE:IR), and American Airlines Group Inc (NASDAQ:AAL). This group of stocks’ market caps resemble SWK’s market cap.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1.72 billion. That figure was $767 million in SWK’s case. Molson Coors Brewing Company (NYSE:TAP) is the most popular stock in this table. On the other hand HCP, Inc. (NYSE:HCP) is the least popular one with only 14 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TAP might be a better candidate to consider a long position.

Disclosure: None