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Were Hedge Funds Right About Stacking Up Intuitive Surgical, Inc. (ISRG)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Intuitive Surgical, Inc. (NASDAQ:ISRG).

Intuitive Surgical, Inc. (NASDAQ:ISRG) was in 49 hedge funds’ portfolios at the end of December. ISRG has experienced an increase in hedge fund interest of late. There were 44 hedge funds in our database with ISRG positions at the end of the previous quarter. Our calculations also showed that ISRG isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management

Let’s take a look at the key hedge fund action surrounding Intuitive Surgical, Inc. (NASDAQ:ISRG).

How are hedge funds trading Intuitive Surgical, Inc. (NASDAQ:ISRG)?

Heading into the first quarter of 2019, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2018. On the other hand, there were a total of 39 hedge funds with a bullish position in ISRG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ISRG_mar2019

Among these funds, Citadel Investment Group held the most valuable stake in Intuitive Surgical, Inc. (NASDAQ:ISRG), which was worth $244.2 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $137.4 million worth of shares. Moreover, AQR Capital Management, Millennium Management, and Adage Capital Management were also bullish on Intuitive Surgical, Inc. (NASDAQ:ISRG), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, some big names have been driving this bullishness. Duquesne Capital, managed by Stanley Druckenmiller, assembled the biggest position in Intuitive Surgical, Inc. (NASDAQ:ISRG). Duquesne Capital had $52.8 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also made a $47.2 million investment in the stock during the quarter. The other funds with brand new ISRG positions are Matthew Tewksbury’s Stevens Capital Management, Jeffrey Talpins’s Element Capital Management, and James Dondero’s Highland Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Intuitive Surgical, Inc. (NASDAQ:ISRG) but similarly valued. We will take a look at Canadian National Railway Company (NYSE:CNI), T-Mobile US, Inc. (NASDAQ:TMUS), PNC Financial Services Group Inc. (NYSE:PNC), and Enterprise Products Partners L.P. (NYSE:EPD). All of these stocks’ market caps are similar to ISRG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNI 24 1907652 -2
TMUS 75 3616129 -5
PNC 38 2161923 -2
EPD 25 415392 3
Average 40.5 2025274 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $2025 million. That figure was $1474 million in ISRG’s case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 24 bullish hedge fund positions. Intuitive Surgical, Inc. (NASDAQ:ISRG) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on ISRG, though not to the same extent, as the stock returned 16.6% and outperformed the market as well.

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

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