Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Zimmer Biomet Holdings Inc (NYSE:ZBH) to find out whether there were any major changes in hedge funds’ views.
Is ZBH stock a buy or sell? The smart money was in a bearish mood. The number of long hedge fund positions fell by 2 recently. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 53 hedge funds’ portfolios at the end of December. The all time high for this statistic is 64. Our calculations also showed that ZBH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Now we’re going to go over the new hedge fund action surrounding Zimmer Biomet Holdings Inc (NYSE:ZBH).
Do Hedge Funds Think ZBH Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ZBH over the last 22 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Viking Global, managed by Andreas Halvorsen, holds the number one position in Zimmer Biomet Holdings Inc (NYSE:ZBH). Viking Global has a $595.9 million position in the stock, comprising 1.6% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $248.7 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that hold long positions consist of Israel Englander’s Millennium Management, Arthur B Cohen and Joseph Healey’s Healthcor Management LP and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 7.39% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 4.04 percent of its 13F equity portfolio to ZBH.
Due to the fact that Zimmer Biomet Holdings Inc (NYSE:ZBH) has experienced declining sentiment from the smart money, logic holds that there is a sect of fund managers that elected to cut their entire stakes heading into Q1. At the top of the heap, Steve Cohen’s Point72 Asset Management sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth about $51.5 million in stock, and Vishal Saluja and Pham Quang’s Endurant Capital Management was right behind this move, as the fund dumped about $7.4 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q1.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zimmer Biomet Holdings Inc (NYSE:ZBH) but similarly valued. We will take a look at Marvell Technology Group Ltd. (NASDAQ:MRVL), HP Inc. (NYSE:HPQ), The Hershey Company (NYSE:HSY), Orange SA (NYSE:ORAN), New Oriental Education & Technology Group Inc. (NYSE:EDU), Seagen Inc. (NASDAQ:SGEN), and SBA Communications Corporation (NASDAQ:SBAC). All of these stocks’ market caps are closest to ZBH’s market cap.
|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 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $2278 million. That figure was $1607 million in ZBH’s case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 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 77.8. 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 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. Unfortunately ZBH wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned 3.9% since the end of the fourth quarter (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.