Should I Avoid Zimmer Biomet Holdings Inc (ZBH)?

In this article you are going to find out whether hedge funds think Zimmer Biomet Holdings Inc (NYSE:ZBH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Zimmer Biomet Holdings Inc (NYSE:ZBH) a buy, sell, or hold? The best stock pickers were turning less bullish. The number of bullish hedge fund bets shrunk by 2 in recent months. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 48 hedge funds’ portfolios at the end of June. 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 Q2 rankings). There were 50 hedge funds in our database with ZBH holdings at the end of March.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind let’s go over the recent hedge fund action encompassing Zimmer Biomet Holdings Inc (NYSE:ZBH).

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

At the end of June, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ZBH over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, 0 held the most valuable stake in Zimmer Biomet Holdings Inc (NYSE:ZBH), which was worth $475.1 million at the end of the second quarter. On the second spot was Two Sigma Advisors which amassed $189.4 million worth of shares. D E Shaw, Third Point, and Healthcor Management LP 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 4.91% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, earmarking 3.68 percent of its 13F equity portfolio to ZBH.

Judging by the fact that Zimmer Biomet Holdings Inc (NYSE:ZBH) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of money managers that elected to cut their full holdings heading into Q3. At the top of the heap, Stephen DuBois’s Camber Capital Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $100.1 million in stock, and Michael Rockefeller and KarláKroeker’s Woodline Partners was right behind this move, as the fund sold off about $56.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). We will take a look at Rockwell Automation Inc. (NYSE:ROK), Chewy, Inc. (NYSE:CHWY), Stanley Black & Decker, Inc. (NYSE:SWK), First Republic Bank (NYSE:FRC), Wayfair Inc (NYSE:W), Cloudflare, Inc. (NYSE:NET), and Liberty Broadband Corp (NASDAQ:LBRDK). This group of stocks’ market valuations match ZBH’s market valuation.

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As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $2219 million. That figure was $1785 million in ZBH’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) is the least popular one with only 25 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZBH is 55.8. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately ZBH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned -6.9% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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