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Varian Medical Systems, Inc. (VAR): Hedge Funds Taking Some Chips Off The Table

In this article we will check out the progression of hedge fund sentiment towards Varian Medical Systems, Inc. (NYSE:VAR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Varian Medical Systems, Inc. (NYSE:VAR) a buy, sell, or hold? Prominent investors are taking a bearish view. The number of bullish hedge fund bets fell by 5 lately. Our calculations also showed that VAR 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.

YORK CAPITAL MANAGEMENT

James Dinan of York Capital 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 we’re going to take a gander at the recent hedge fund action surrounding Varian Medical Systems, Inc. (NYSE:VAR).

What have hedge funds been doing with Varian Medical Systems, Inc. (NYSE:VAR)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VAR over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is VAR A Good Stock To Buy?

More specifically, Generation Investment Management was the largest shareholder of Varian Medical Systems, Inc. (NYSE:VAR), with a stake worth $184.5 million reported as of the end of September. Trailing Generation Investment Management was Viking Global, which amassed a stake valued at $89 million. Polar Capital, AQR Capital Management, and Citadel Investment Group 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 Varian Medical Systems, Inc. (NYSE:VAR), around 1.31% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to VAR.

Due to the fact that Varian Medical Systems, Inc. (NYSE:VAR) has faced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few money managers who sold off their positions entirely last quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, valued at close to $70.3 million in stock, and James Dinan’s York Capital Management was right behind this move, as the fund dumped about $61.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Varian Medical Systems, Inc. (NYSE:VAR). These stocks are Suzano S.A. (NYSE:SUZ), Hologic, Inc. (NASDAQ:HOLX), Wabtec Corporation (NYSE:WAB), and Enel Americas S.A. (NYSE:ENIA). This group of stocks’ market valuations match VAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SUZ 3 27219 -1
HOLX 41 866159 0
WAB 41 1405445 0
ENIA 7 102191 -1
Average 23 600254 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $440 million in VAR’s case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 bullish hedge fund positions. Varian Medical Systems, Inc. (NYSE:VAR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately VAR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VAR were disappointed as the stock returned 19.9% during the same time period 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 many of these stocks already outperformed the market so far this year.

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