Were Hedge Funds Right About Baxter International (BAX)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Baxter International Inc. (NYSE:BAX).

Is Baxter International Inc. (NYSE:BAX) a buy right now? Prominent investors are turning bullish. The number of bullish hedge fund positions improved by 8 recently. Our calculations also showed that BAX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BAX was in 47 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 39 hedge funds in our database with BAX holdings at the end of the previous quarter.

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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Third Point

Dan Loeb of Third Point

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 this one. 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 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 look at the latest hedge fund action encompassing Baxter International Inc. (NYSE:BAX).

What does smart money think about Baxter International Inc. (NYSE:BAX)?

Heading into the first quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in BAX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Dan Loeb’s Third Point has the largest position in Baxter International Inc. (NYSE:BAX), worth close to $1.4634 billion, accounting for 16.8% of its total 13F portfolio. The second largest stake is held by Generation Investment Management, led by David Blood and Al Gore, holding a $570.1 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Third Point allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 16.83% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, dishing out 3.74 percent of its 13F equity portfolio to BAX.

Now, key money managers were breaking ground themselves. Generation Investment Management, managed by David Blood and Al Gore, assembled the biggest position in Baxter International Inc. (NYSE:BAX). Generation Investment Management had $570.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $122.8 million investment in the stock during the quarter. The following funds were also among the new BAX investors: Aaron Cowen’s Suvretta Capital Management, Anand Parekh’s Alyeska Investment Group, and Amy Mulderry’s Tavio Capital.

Let’s also examine hedge fund activity in other stocks similar to Baxter International Inc. (NYSE:BAX). We will take a look at Lam Research Corporation (NASDAQ:LRCX), The Progressive Corporation (NYSE:PGR), BCE Inc. (NYSE:BCE), and Ross Stores, Inc. (NASDAQ:ROST). This group of stocks’ market values resemble BAX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LRCX 52 2625592 0
PGR 48 1782118 -5
BCE 19 219572 5
ROST 48 1029100 4
Average 41.75 1414096 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1414 million. That figure was $3520 million in BAX’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 19 bullish hedge fund positions. Baxter International Inc. (NYSE:BAX) is not the most popular stock in this group but hedge fund interest is still above average. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on BAX as the stock returned 5.3% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.