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Stericycle Inc (SRCL): Hedge Funds Taking Some Chips Off The Table

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Stericycle Inc (NASDAQ:SRCL) based on that data.

Stericycle Inc (NASDAQ:SRCL) shareholders have witnessed a decrease in hedge fund interest recently. SRCL was in 20 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with SRCL positions at the end of the previous quarter. Our calculations also showed that SRCL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the new hedge fund action regarding Stericycle Inc (NASDAQ:SRCL).

Hedge fund activity in Stericycle Inc (NASDAQ:SRCL)

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in SRCL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SRCL A Good Stock To Buy?

Among these funds, Generation Investment Management held the most valuable stake in Stericycle Inc (NASDAQ:SRCL), which was worth $157.3 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $141.6 million worth of shares. Iridian Asset Management, Diamond Hill Capital, and Markel Gayner Asset 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 Silver Heights Capital Management allocated the biggest weight to Stericycle Inc (NASDAQ:SRCL), around 20.2% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, setting aside 8.25 percent of its 13F equity portfolio to SRCL.

Seeing as Stericycle Inc (NASDAQ:SRCL) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies who were dropping their entire stakes in the first quarter. Intriguingly, Justin John Ferayorni’s Tamarack Capital Management dropped the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $18.6 million in stock. Brandon Haley’s fund, Holocene Advisors, also cut its stock, about $5.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Stericycle Inc (NASDAQ:SRCL). These stocks are Life Storage, Inc. (NYSE:LSI), ONE Gas Inc (NYSE:OGS), LHC Group, Inc. (NASDAQ:LHCG), and Zions Bancorporation, National Association (NASDAQ:ZION). This group of stocks’ market values match SRCL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LSI 22 155858 2
OGS 16 55599 0
LHCG 27 152070 1
ZION 33 112685 -10
Average 24.5 119053 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $572 million in SRCL’s case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 16 bullish hedge fund positions. Stericycle Inc (NASDAQ:SRCL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately SRCL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SRCL investors were disappointed as the stock returned 20.6% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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