Is ZBH A Good Stock To Buy Now?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Zimmer Biomet Holdings Inc (NYSE:ZBH)? The smart money sentiment can provide an answer to this question.

Is ZBH a good stock to buy now? Zimmer Biomet Holdings Inc (NYSE:ZBH) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 55 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 64. Our calculations also showed that ZBH 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.

To the average investor there are numerous tools shareholders put to use to size up their holdings. A couple of the most useful tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite investment managers can outpace the market by a healthy margin (see the details here).

Arthur B Cohen and Joseph Healey of Healthcor Management LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium 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 let’s take a look at the latest hedge fund action surrounding Zimmer Biomet Holdings Inc (NYSE:ZBH).

What have hedge funds been doing with Zimmer Biomet Holdings Inc (NYSE:ZBH)?

At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZBH over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Viking Global was the largest shareholder of Zimmer Biomet Holdings Inc (NYSE:ZBH), with a stake worth $230.1 million reported as of the end of September. Trailing Viking Global was Healthcor Management LP, which amassed a stake valued at $177.8 million. Citadel Investment Group, Ariel Investments, and Polar Capital 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 Healthcor Management LP allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 7.12% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, earmarking 6.69 percent of its 13F equity portfolio to ZBH.

Seeing as Zimmer Biomet Holdings Inc (NYSE:ZBH) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their entire stakes last quarter. At the top of the heap, Renaissance Technologies dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $27 million in stock, and Christopher James’s Partner Fund Management was right behind this move, as the fund sold off about $21.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). These stocks are Chunghwa Telecom Co., Ltd (NYSE:CHT), ANSYS, Inc. (NASDAQ:ANSS), Moderna, Inc. (NASDAQ:MRNA), Kinder Morgan Inc (NYSE:KMI), Alcon Inc. (NYSE:ALC), Public Service Enterprise Group Incorporated (NYSE:PEG), and Wayfair Inc (NYSE:W). This group of stocks’ market caps match ZBH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHT 5 149365 1
ANSS 40 1456264 0
MRNA 32 690338 -5
KMI 46 939696 -4
ALC 26 676140 5
PEG 23 406385 -8
W 40 4956036 -1
Average 30.3 1324889 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $1325 million. That figure was $1130 million in ZBH’s case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Zimmer Biomet Holdings Inc (NYSE:ZBH) is more popular among hedge funds. Our overall hedge fund sentiment score for ZBH is 73.8. 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 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately ZBH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned 8.6% since the end of the third quarter (through 12/2) 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.

Follow Zimmer Biomet Holdings Inc. (NYSE:ZBH)

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