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Were Hedge Funds Right About Honeywell International Inc. (HON)?

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. Keeping this in mind, let’s take a look at whether Honeywell International Inc. (NYSE:HON) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Honeywell International Inc. (NYSE:HON) worth your attention right now? Hedge funds are taking a bearish view. The number of bullish hedge fund positions shrunk by 3 in recent months. Our calculations also showed that HON 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). HON was in 55 hedge funds’ portfolios at the end of December. There were 58 hedge funds in our database with HON holdings at the end of the previous quarter.

Mario Gabelli

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Now let’s check out the key hedge fund action encompassing Honeywell International Inc. (NYSE:HON).

What does smart money think about Honeywell International Inc. (NYSE:HON)?

At the end of the fourth quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HON over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HON A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of Honeywell International Inc. (NYSE:HON), with a stake worth $323.1 million reported as of the end of September. Trailing D E Shaw was AQR Capital Management, which amassed a stake valued at $286.7 million. Two Sigma Advisors, Millennium Management, and GAMCO Investors 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 Pittencrieff Partners – Gabalex Capital allocated the biggest weight to Honeywell International Inc. (NYSE:HON), around 10.44% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, dishing out 4.07 percent of its 13F equity portfolio to HON.

Due to the fact that Honeywell International Inc. (NYSE:HON) has witnessed bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Jonathan Barrett and Paul Segal’s Luminus Management said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $30.4 million in stock. Sara Nainzadeh’s fund, Centenus Global Management, also dropped its stock, about $7.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). We will take a look at Eli Lilly and Company (NYSE:LLY), Sanofi (NYSE:SNY), Broadcom Inc (NASDAQ:AVGO), and Union Pacific Corporation (NYSE:UNP). This group of stocks’ market caps match HON’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LLY 43 1493296 -1
SNY 31 1113585 3
AVGO 61 2513808 2
UNP 65 5313051 -4
Average 50 2608435 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $2608 million. That figure was $2282 million in HON’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Sanofi (NYSE:SNY) is the least popular one with only 31 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately HON wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HON were disappointed as the stock returned -22.9% 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.
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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