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Should I Avoid Medtronic plc (MDT)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Medtronic plc (NYSE:MDT) and determine whether the smart money was really smart about this stock.

Medtronic plc (NYSE:MDT) has experienced a decrease in enthusiasm from smart money recently. Medtronic plc (NYSE:MDT) was in 58 hedge funds’ portfolios at the end of June. The all time high for this statistics is 66. Our calculations also showed that MDT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s view the recent hedge fund action regarding Medtronic plc (NYSE:MDT).

Hedge fund activity in Medtronic plc (NYSE:MDT)

At Q2’s end, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 49 hedge funds with a bullish position in MDT a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the number one position in Medtronic plc (NYSE:MDT), worth close to $336.8 million, corresponding to 2% of its total 13F portfolio. Coming in second is D E Shaw, led by D. E. Shaw, holding a $283.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 3.83% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 3.52 percent of its 13F equity portfolio to MDT.

Due to the fact that Medtronic plc (NYSE:MDT) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their positions entirely heading into Q3. Interestingly, Anand Parekh’s Alyeska Investment Group cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $46.2 million in stock, and Michael Lowenstein’s Kensico Capital was right behind this move, as the fund said goodbye to about $22.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Medtronic plc (NYSE:MDT) but similarly valued. We will take a look at Royal Dutch Shell plc (NYSE:RDS), NextEra Energy, Inc. (NYSE:NEE), Texas Instruments Incorporated (NASDAQ:TXN), Union Pacific Corporation (NYSE:UNP), American Tower Corporation (REIT) (NYSE:AMT), Shopify Inc (NYSE:SHOP), and Linde plc (NYSE:LIN). This group of stocks’ market valuations match MDT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RDS 34 1164812 6
NEE 55 1943660 3
TXN 55 2131731 9
UNP 68 3685933 5
AMT 61 4407292 4
SHOP 57 5916379 14
LIN 52 3643095 -1
Average 54.6 3270415 5.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.6 hedge funds with bullish positions and the average amount invested in these stocks was $3270 million. That figure was $2705 million in MDT’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 34 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDT is 65.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately MDT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MDT were disappointed as the stock returned 9.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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