At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Zoetis Inc (NYSE:ZTS) an exceptional stock to buy now? Money managers are getting less optimistic. The number of bullish hedge fund positions went down by 2 recently. 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 Luxottica Group SpA (ADR) (NYSE:LUX), Charter Communications, Inc. (NASDAQ:CHTR), and AutoZone, Inc. (NYSE:AZO) 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.
With all of this in mind, we’re going to analyze the fresh action surrounding Zoetis Inc (NYSE:ZTS).
What have hedge funds been doing with Zoetis Inc (NYSE:ZTS)?
At Q3’s end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2016. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the most valuable position in Zoetis Inc (NYSE:ZTS). Marshall Wace LLP has a $657.8 million position in the stock, comprising 4.7% of its 13F portfolio. The second largest stake is held by Cantillon Capital Management, led by William von Mueffling, holding a $311.1 million position; 4.4% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism comprise Steve Cohen’s Point72 Asset Management, Bill Ackman’s Pershing Square and Ryan Pedlow’s Two Creeks Capital Management.
Since Zoetis Inc (NYSE:ZTS) has experienced bearish sentiment from the smart money, logic holds that there is a sect of funds who sold off their full holdings by the end of the third quarter. Intriguingly, Jean-Marie Eveillard’s First Eagle Investment Management dropped the biggest position of all the hedgies watched by Insider Monkey, worth close to $98.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $18.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. We will take a look at Luxottica Group SpA (ADR) (NYSE:LUX), Charter Communications, Inc. (NASDAQ:CHTR), AutoZone, Inc. (NYSE:AZO), and Telefonica Brasil SA (ADR) (NYSE:VIV). All of these stocks’ market caps match ZTS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $4.99 billion. That figure was $2.24 billion in ZTS’s case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand Luxottica Group SpA (ADR) (NYSE:LUX) is the least popular one with only 3 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CHTR might be a better candidate to consider a long position.