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The Cooper Companies, Inc. (COO) vs. Hedge Fund Favorites in 2019

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like The Cooper Companies, Inc. (NYSE:COO).

Is The Cooper Companies, Inc. (NYSE:COO) a sound investment right now? The best stock pickers are getting less bullish. The number of bullish hedge fund positions retreated by 1 in recent months. Our calculations also showed that COO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to review the recent hedge fund action surrounding The Cooper Companies, Inc. (NYSE:COO).

Hedge fund activity in The Cooper Companies, Inc. (NYSE:COO)

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COO over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Generation Investment Management was the largest shareholder of The Cooper Companies, Inc. (NYSE:COO), with a stake worth $453.8 million reported as of the end of September. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $89.2 million. Marshall Wace, Renaissance Technologies, and Two Sigma Advisors 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 Generation Investment Management allocated the biggest weight to The Cooper Companies, Inc. (NYSE:COO), around 3.2% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, dishing out 1.7 percent of its 13F equity portfolio to COO.

Due to the fact that The Cooper Companies, Inc. (NYSE:COO) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that elected to cut their full holdings by the end of the third quarter. Interestingly, Gabriel Plotkin’s Melvin Capital Management cut the largest stake of all the hedgies watched by Insider Monkey, totaling an estimated $33.7 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund dumped about $10.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s now take a look at 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 Diamondback Energy Inc (NASDAQ:FANG), Symantec Corporation (NASDAQ:SYMC), CarMax Inc (NYSE:KMX), and Brookfield Infrastructure Partners L.P. (NYSE:BIP). This group of stocks’ market valuations are similar to COO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FANG 40 1201319 -7
SYMC 38 1527336 3
KMX 41 1886723 2
BIP 7 54208 0
Average 31.5 1167397 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1167 million. That figure was $742 million in COO’s case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 7 bullish hedge fund positions. The Cooper Companies, Inc. (NYSE:COO) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately COO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COO investors were disappointed as the stock returned 26.3% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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