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Were Hedge Funds Right About Piling Into Medtronic plc (MDT)?

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 Medtronic plc (NYSE:MDT).

Is Medtronic plc (NYSE:MDT) going to take off soon? Hedge funds are getting more optimistic. The number of long hedge fund positions moved up by 10 lately. Our calculations also showed that MDT 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

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. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. 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. With all of this in mind let’s take a look at the key hedge fund action surrounding Medtronic plc (NYSE:MDT).

What does smart money think about Medtronic plc (NYSE:MDT)?

At the end of the fourth quarter, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MDT over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Medtronic plc (NYSE:MDT), with a stake worth $414.9 million reported as of the end of September. Trailing Diamond Hill Capital was AQR Capital Management, which amassed a stake valued at $324 million. Citadel Investment Group, Holocene Advisors, and Adage Capital Management 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 Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 10.02% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, setting aside 4.64 percent of its 13F equity portfolio to MDT.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Sirios Capital Management, managed by John Brennan, initiated the most valuable position in Medtronic plc (NYSE:MDT). Sirios Capital Management had $59.3 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also made a $12.1 million investment in the stock during the quarter. The other funds with brand new MDT positions are Bhagwan Jay Rao’s Integral Health Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks similar to Medtronic plc (NYSE:MDT). These stocks are The Unilever Group (NYSE:UN), Bristol Myers Squibb Company (NYSE:BMY), The Unilever Group (NYSE:UL), and McDonald’s Corporation (NYSE:MCD). This group of stocks’ market caps match MDT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UN 15 1009132 -2
BMY 122 7810013 61
UL 17 247925 2
MCD 57 1633049 5
Average 52.75 2675030 16.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.75 hedge funds with bullish positions and the average amount invested in these stocks was $2675 million. That figure was $2501 million in MDT’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. Medtronic plc (NYSE:MDT) 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 lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on MDT, though not to the same extent, as the stock returned -9.9% during the first four months of 2020 (through April 20th) and outperformed the market as well.
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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