Should You Buy Henry Schein, Inc. (HSIC)?

“Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Henry Schein, Inc. (NASDAQ:HSIC) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Henry Schein, Inc. (NASDAQ:HSIC) was in 22 hedge funds’ portfolios at the end of September. HSIC investors should pay attention to an increase in enthusiasm from smart money in recent months. There were 20 hedge funds in our database with HSIC holdings at the end of the previous quarter. Our calculations also showed that HSIC isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

Let’s view the latest hedge fund action surrounding Henry Schein, Inc. (NASDAQ:HSIC).

What does the smart money think about Henry Schein, Inc. (NASDAQ:HSIC)?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in HSIC at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Generation Investment Management was the largest shareholder of Henry Schein, Inc. (NASDAQ:HSIC), with a stake worth $1153.4 million reported as of the end of September. Trailing Generation Investment Management was Select Equity Group, which amassed a stake valued at $528.5 million. Park West Asset Management, Hoplite Capital Management, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

Now, some big names have been driving this bullishness. Hoplite Capital Management, managed by John Lykouretzos, initiated the largest position in Henry Schein, Inc. (NASDAQ:HSIC). Hoplite Capital Management had $28 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $1 million position during the quarter. The other funds with brand new HSIC positions are Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Henry Schein, Inc. (NASDAQ:HSIC) but similarly valued. We will take a look at J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Alliance Data Systems Corporation (NYSE:ADS), Barrick Gold Corporation (NYSE:ABX), and Vistra Energy Corp. (NYSE:VST). All of these stocks’ market caps are closest to HSIC’s market cap.

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As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.73 billion. That figure was $1.90 billion in HSIC’s case. Vistra Energy Corp. (NYSE:VST) is the most popular stock in this table. On the other hand J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Henry Schein, Inc. (NASDAQ:HSIC) is even less popular than JBHT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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