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Were Hedge Funds Right About Souring On Medtronic plc (MDT)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMedtronic plc (NYSE:MDT) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Medtronic plc (NYSE:MDT) investors should pay attention to a decrease in hedge fund sentiment in recent months. Our calculations also showed that MDT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding Medtronic plc (NYSE:MDT).

How are hedge funds trading Medtronic plc (NYSE:MDT)?

At Q1’s end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2019. By comparison, 50 hedge funds held shares or bullish call options in MDT a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is MDT A Good Stock To Buy?

More specifically, Diamond Hill Capital was the largest shareholder of Medtronic plc (NYSE:MDT), with a stake worth $328.7 million reported as of the end of September. Trailing Diamond Hill Capital was Holocene Advisors, which amassed a stake valued at $207.4 million. AQR Capital Management, D E Shaw, 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 7.68% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, earmarking 4.57 percent of its 13F equity portfolio to MDT.

Since Medtronic plc (NYSE:MDT) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers that elected to cut their entire stakes last quarter. At the top of the heap, Aaron Cowen’s Suvretta Capital Management cut the largest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $99.2 million in stock, and Michael Castor’s Sio Capital was right behind this move, as the fund dumped about $16.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Medtronic plc (NYSE:MDT). These stocks are Amgen, Inc. (NASDAQ:AMGN), NextEra Energy, Inc. (NYSE:NEE), Wells Fargo & Company (NYSE:WFC), and AstraZeneca plc (NYSE:AZN). This group of stocks’ market caps are closest to MDT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMGN 52 2056537 -6
NEE 52 1436389 6
WFC 76 12935257 -3
AZN 26 1772166 -6
Average 51.5 4550087 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.5 hedge funds with bullish positions and the average amount invested in these stocks was $4550 million. That figure was $1840 million in MDT’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 26 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. 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 gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately MDT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MDT were disappointed as the stock returned 2.4% 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.

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