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The Cooper Companies (COO): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about The Cooper Companies, Inc. (NYSE:COO)?

Is The Cooper Companies, Inc. (NYSE:COO) ready to rally soon? Prominent investors are selling. The number of long hedge fund positions decreased by 3 recently. Our calculations also showed that COO 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). COO was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with COO positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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 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 stocks that are in our short portfolio.

David Blood

David Blood of Generation Investment Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. With all of this in mind let’s go over the recent hedge fund action regarding The Cooper Companies, Inc. (NYSE:COO).

How have hedgies been trading The Cooper Companies, Inc. (NYSE:COO)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in COO over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in The Cooper Companies, Inc. (NYSE:COO) was held by Generation Investment Management, which reported holding $498.7 million worth of stock at the end of September. It was followed by Viking Global with a $120.5 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to The Cooper Companies, Inc. (NYSE:COO), around 3.54% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to COO.

Because The Cooper Companies, Inc. (NYSE:COO) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that decided to sell off their full holdings by the end of the first quarter. It’s worth mentioning that Renaissance Technologies sold off the biggest position of all the hedgies watched by Insider Monkey, comprising an estimated $11.4 million in stock, and Phil Frohlich’s Prescott Group Capital Management was right behind this move, as the fund dropped about $2.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Cooper Companies, Inc. (NYSE:COO) but similarly valued. These stocks are Best Buy Co., Inc. (NYSE:BBY), Essex Property Trust Inc (NYSE:ESS), Fiat Chrysler Automobiles NV (NYSE:FCAU), and Equifax Inc. (NYSE:EFX). This group of stocks’ market values are closest to COO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBY 37 633714 12
ESS 31 368188 -2
FCAU 25 395391 2
EFX 32 1300733 0
Average 31.25 674507 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $675 million. That figure was $932 million in COO’s case. Best Buy Co., Inc. (NYSE:BBY) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks The Cooper Companies, Inc. (NYSE:COO) is even less popular than FCAU. Hedge funds dodged a bullet by taking a bearish stance towards COO. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately COO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); COO investors were disappointed as the stock returned 8.3% during the second quarter (through June 10th) 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 so far in 2020.

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