Should You Avoid Honeywell International Inc. (HON)?

Is Honeywell International Inc. (NYSE:HON) a good equity to bet on 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 Honeywell International Inc. (NYSE:HON) undervalued? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets dropped by 3 in recent months. Our calculations also showed that HON isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are assumed to be slow, outdated financial vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, We choose to focus on the masters of this club, around 750 funds. These money managers oversee most of the hedge fund industry’s total asset base, and by shadowing their best picks, Insider Monkey has spotted a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

Let’s review the recent hedge fund action regarding Honeywell International Inc. (NYSE:HON).

Hedge fund activity in Honeywell International Inc. (NYSE:HON)

Heading into the fourth quarter of 2019, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2019. By comparison, 47 hedge funds held shares or bullish call options in HON a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).


Among these funds, AQR Capital Management held the most valuable stake in Honeywell International Inc. (NYSE:HON), which was worth $320.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $303.8 million worth of shares. GAMCO Investors, Diamond Hill Capital, and Adage Capital Management 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 Gabalex Capital allocated the biggest weight to Honeywell International Inc. (NYSE:HON), around 10.27% of its portfolio. Bourgeon Capital is also relatively very bullish on the stock, dishing out 3.63 percent of its 13F equity portfolio to HON.

Seeing as Honeywell International Inc. (NYSE:HON) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Nick Niell’s Arrowgrass Capital Partners said goodbye to the largest position of all the hedgies followed by Insider Monkey, totaling an estimated $20.7 million in stock, and Clint Carlson’s Carlson Capital was right behind this move, as the fund said goodbye to about $7.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). We will take a look at Texas Instruments Incorporated (NASDAQ:TXN), Philip Morris International Inc. (NYSE:PM), United Technologies Corporation (NYSE:UTX), and Netflix, Inc. (NASDAQ:NFLX). This group of stocks’ market caps are similar to HON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TXN 52 2578705 9
PM 53 3693236 14
UTX 68 6458342 3
NFLX 95 8996171 -11
Average 67 5431614 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 67 hedge funds with bullish positions and the average amount invested in these stocks was $5432 million. That figure was $1926 million in HON’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Texas Instruments Incorporated (NASDAQ:TXN) is the least popular one with only 52 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on HON, though not to the same extent, as the stock returned 5% during the fourth quarter (through 11/22) and outperformed the market.

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