Is SWK Stock A Buy or Sell?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Stanley Black & Decker, Inc. (NYSE:SWK).

Is SWK stock a buy or sell? Hedge fund interest in Stanley Black & Decker, Inc. (NYSE:SWK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SWK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). 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 Canadian Natural Resources Limited (NYSE:CNQ), Archer Daniels Midland Company (NYSE:ADM), and Fastenal Company (NASDAQ:FAST) to gather more data points.

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 124 percentage points since March 2017 (see the details here).

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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 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 let’s review the new hedge fund action surrounding Stanley Black & Decker, Inc. (NYSE:SWK).

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

At fourth quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SWK 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.

The largest stake in Stanley Black & Decker, Inc. (NYSE:SWK) was held by Pzena Investment Management, which reported holding $184.5 million worth of stock at the end of December. It was followed by Third Point with a $146 million position. Other investors bullish on the company included D E Shaw, GLG Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Wexford Capital allocated the biggest weight to Stanley Black & Decker, Inc. (NYSE:SWK), around 1.97% of its 13F portfolio. Sandler Capital Management is also relatively very bullish on the stock, dishing out 1.25 percent of its 13F equity portfolio to SWK.

Because Stanley Black & Decker, Inc. (NYSE:SWK) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their entire stakes in the fourth quarter. At the top of the heap, Anand More’s SAYA Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, totaling close to $18.4 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $12.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Stanley Black & Decker, Inc. (NYSE:SWK). These stocks are Canadian Natural Resources Limited (NYSE:CNQ), Archer Daniels Midland Company (NYSE:ADM), Fastenal Company (NASDAQ:FAST), Simon Property Group, Inc (NYSE:SPG), McKesson Corporation (NYSE:MCK), AMETEK, Inc. (NYSE:AME), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks’ market values match SWK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNQ 29 341108 -1
ADM 35 703261 9
FAST 30 612311 -8
SPG 32 353434 7
MCK 51 1768164 -3
AME 31 956468 -6
AWK 36 958304 5
Average 34.9 813293 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $813 million. That figure was $846 million in SWK’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Canadian Natural Resources Limited (NYSE:CNQ) is the least popular one with only 29 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWK is 53.3. 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. 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 still beat the market by 0.8 percentage points. Hedge funds were also right about betting on SWK as the stock returned 10.6% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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