Should I Buy Medtronic plc (MDT)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Medtronic plc (NYSE:MDT) in this article.

Is Medtronic plc (NYSE:MDT) a healthy stock for your portfolio? Money managers were taking a bullish view. The number of long hedge fund bets rose by 6 recently. Medtronic plc (NYSE:MDT) was in 65 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 66. Our calculations also showed that MDT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. 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 115 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.

Scott Bessent of Key Square Capital Management

Scott Bessent of Key Square Capital Management

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. With all of this in mind we’re going to take a gander at the recent hedge fund action encompassing Medtronic plc (NYSE:MDT).

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

At the end of March, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MDT over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the number one position in Medtronic plc (NYSE:MDT). Diamond Hill Capital has a $512.8 million position in the stock, comprising 2.1% of its 13F portfolio. Coming in second is D E Shaw, led by D. E. Shaw, holding a $446.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Ken Griffin’s Citadel Investment Group, Ken Fisher’s Fisher Asset Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 7.27% of its 13F portfolio. Tri Locum Partners is also relatively very bullish on the stock, earmarking 7.02 percent of its 13F equity portfolio to MDT.

Consequently, key money managers have been driving this bullishness. Redmile Group, managed by Jeremy Green, initiated the biggest position in Medtronic plc (NYSE:MDT). Redmile Group had $115.7 million invested in the company at the end of the quarter. Justin John Ferayorni’s Tamarack Capital Management also made a $35.4 million investment in the stock during the quarter. The other funds with brand new MDT positions are Frank Fu’s CaaS Capital, Scott Bessent’s Key Square Capital Management, and Greg Eisner’s Engineers Gate Manager.

Let’s go over 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 Novo Nordisk A/S (NYSE:NVO), Costco Wholesale Corporation (NASDAQ:COST), T-Mobile US, Inc. (NASDAQ:TMUS), Citigroup Inc. (NYSE:C), Royal Dutch Shell plc (NYSE:RDS), Honeywell International Inc. (NASDAQ:HON), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks’ market valuations resemble MDT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NVO 23 2929727 0
COST 56 4014769 -5
TMUS 98 9055738 -5
C 90 6938143 -5
RDS 36 2190186 2
HON 56 1731346 11
QCOM 73 2765985 -12
Average 61.7 4232271 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.7 hedge funds with bullish positions and the average amount invested in these stocks was $4232 million. That figure was $3628 million in MDT’s case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 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 67.5. 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 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately MDT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MDT were disappointed as the stock returned 4.8% since the end of March (through 6/11) 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.