Were Hedge Funds Right About Becton, Dickinson and Company (BDX)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Becton, Dickinson and Company (NYSE:BDX).

Becton, Dickinson and Company (NYSE:BDX) was in 52 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 65. BDX has experienced a decrease in support from the world’s most elite money managers in recent months. There were 65 hedge funds in our database with BDX positions at the end of the first quarter. Our calculations also showed that BDX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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 go over the recent hedge fund action encompassing Becton, Dickinson and Company (NYSE:BDX).

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

At the end of the second quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in BDX over the last 24 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the biggest position in Becton, Dickinson and Company (NYSE:BDX). Fundsmith LLP has a $1.0527 billion position in the stock, comprising 2.9% of its 13F portfolio. Coming in second is David Blood and Al Gore of Generation Investment Management, with a $934.9 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of William von Mueffling’s Cantillon Capital Management, Ian Simm’s Impax Asset Management and Barry Dargan’s Intermede Investment Partners. In terms of the portfolio weights assigned to each position Columbus Point allocated the biggest weight to Becton, Dickinson and Company (NYSE:BDX), around 6.35% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, setting aside 3.88 percent of its 13F equity portfolio to BDX.

Since Becton, Dickinson and Company (NYSE:BDX) has faced bearish sentiment from the smart money, logic holds that there were a few hedgies that slashed their full holdings in the second quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest position of the 750 funds watched by Insider Monkey, worth about $124.1 million in stock, and Michael Rockefeller and KarláKroeker’s Woodline Partners was right behind this move, as the fund dropped about $37.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 13 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Becton, Dickinson and Company (NYSE:BDX). These stocks are Illinois Tool Works Inc. (NYSE:ITW), Capital One Financial Corp. (NYSE:COF), Illumina, Inc. (NASDAQ:ILMN), Equinor ASA (NYSE:EQNR), Colgate-Palmolive Company (NYSE:CL), The Blackstone Group Inc. (NYSE:BX), and HCA Healthcare Inc (NYSE:HCA). This group of stocks’ market caps are closest to BDX’s market cap.

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As you can see these stocks had an average of 49 hedge funds with bullish positions and the average amount invested in these stocks was $1988 million. That figure was $3335 million in BDX’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 11 bullish hedge fund positions. Becton, Dickinson and Company (NYSE:BDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BDX is 54.7. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately BDX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BDX were disappointed as the stock returned 0.5% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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