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Were Hedge Funds Right About Johnson Controls International plc (JCI)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Johnson Controls International plc (NYSE:JCI).

Is Johnson Controls International plc (NYSE:JCI) a buy here? Investors who are in the know are becoming hopeful. The number of long hedge fund bets moved up by 13 lately. Our calculations also showed that JCI 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). JCI was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with JCI holdings at the end of the previous quarter.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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 let’s view the fresh hedge fund action regarding Johnson Controls International plc (NYSE:JCI).

Hedge fund activity in Johnson Controls International plc (NYSE:JCI)

Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 54% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in JCI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Johnson Controls International plc (NYSE:JCI), which was worth $154.6 million at the end of the third quarter. On the second spot was Balyasny Asset Management which amassed $141.8 million worth of shares. Arrowstreet Capital, Adage Capital Management, and Renaissance Technologies 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 Scopia Capital allocated the biggest weight to Johnson Controls International plc (NYSE:JCI), around 5.92% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, earmarking 0.84 percent of its 13F equity portfolio to JCI.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Johnson Controls International plc (NYSE:JCI). Balyasny Asset Management had $141.8 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $116.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Ray Dalio’s Bridgewater Associates, and Alexander Mitchell’s Scopus Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Johnson Controls International plc (NYSE:JCI) but similarly valued. These stocks are Electronic Arts Inc. (NASDAQ:EA), Hilton Worldwide Holdings Inc (NYSE:HLT), ONEOK, Inc. (NYSE:OKE), and Zimmer Biomet Holdings Inc (NYSE:ZBH). All of these stocks’ market caps resemble JCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EA 68 2359890 -2
HLT 57 4450016 4
OKE 31 223513 5
ZBH 64 1443573 15
Average 55 2119248 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $2119 million. That figure was $1120 million in JCI’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 31 bullish hedge fund positions. Johnson Controls International plc (NYSE:JCI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately JCI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); JCI investors were disappointed as the stock returned -31% 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 most of these stocks already outperformed the market in 2020.
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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