Was The Smart Money Right About Zimmer Biomet (ZBH)?

In this article you are going to find out whether hedge funds think Zimmer Biomet Holdings Inc (NYSE:ZBH) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Zimmer Biomet Holdings Inc (NYSE:ZBH) a cheap investment now? Hedge funds were reducing their bets on the stock. The number of long hedge fund positions were cut by 2 in recent months. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 53 hedge funds’ portfolios at the end of December. The all time high for this statistic is 64. Our calculations also showed that ZBH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

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At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a glance at the key hedge fund action surrounding Zimmer Biomet Holdings Inc (NYSE:ZBH).

Do Hedge Funds Think ZBH Is A Good Stock To Buy Now?

At Q4’s end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 64 hedge funds held shares or bullish call options in ZBH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Viking Global was the largest shareholder of Zimmer Biomet Holdings Inc (NYSE:ZBH), with a stake worth $595.9 million reported as of the end of December. Trailing Viking Global was Citadel Investment Group, which amassed a stake valued at $248.7 million. Millennium Management, Healthcor Management LP, and Ariel Investments 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 Iron Triangle Partners allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 7.39% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, dishing out 4.04 percent of its 13F equity portfolio to ZBH.

Since Zimmer Biomet Holdings Inc (NYSE:ZBH) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that slashed their entire stakes heading into Q1. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising close to $51.5 million in stock. Vishal Saluja and Pham Quang’s fund, Endurant Capital Management, also dumped its stock, about $7.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q1.

Let’s check out hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). We will take a look at Marvell Technology, Inc. (NASDAQ:MRVL), HP Inc. (NYSE:HPQ), The Hershey Company (NYSE:HSY), Orange SA (NYSE:ORAN), New Oriental Education & Technology Group Inc. (NYSE:EDU), Seagen Inc. (NASDAQ:SGEN), and SBA Communications Corporation (NASDAQ:SBAC). All of these stocks’ market caps are closest to ZBH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRVL 40 556230 3
HPQ 39 1047627 -2
HSY 39 1411098 -4
ORAN 3 6060 -1
EDU 43 2540561 3
SGEN 32 8619222 4
SBAC 43 1761954 0
Average 34.1 2277536 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $2278 million. That figure was $1607 million in ZBH’s case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Zimmer Biomet Holdings Inc (NYSE:ZBH) is more popular among hedge funds. Our overall hedge fund sentiment score for ZBH is 77.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on ZBH as the stock returned 15.1% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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