Did Hedge Funds Catch A Break With Boston Scientific Corporation (BSX)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Boston Scientific Corporation (NYSE:BSX) and determine whether hedge funds had an edge regarding this stock.

Is Boston Scientific Corporation (NYSE:BSX) the right investment to pursue these days? The smart money was selling. The number of bullish hedge fund bets were cut by 4 in recent months. Boston Scientific Corporation (NYSE:BSX) was in 47 hedge funds’ portfolios at the end of September. The all time high for this statistic is 66. Our calculations also showed that BSX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the recent hedge fund action surrounding Boston Scientific Corporation (NYSE:BSX).

David Harding of Winton Capital Management

Do Hedge Funds Think BSX Is A Good Stock To Buy Now?

At the end of September, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BSX over the last 25 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Farallon Capital held the most valuable stake in Boston Scientific Corporation (NYSE:BSX), which was worth $607.6 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $350.7 million worth of shares. Viking Global, OrbiMed Advisors, and Citadel Investment Group 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 Locust Wood Capital Advisers allocated the biggest weight to Boston Scientific Corporation (NYSE:BSX), around 3.68% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, designating 3.2 percent of its 13F equity portfolio to BSX.

Because Boston Scientific Corporation (NYSE:BSX) has faced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Matthew Stadelman’s Diamond Hill Capital dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $46.9 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also dumped its stock, about $44.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Boston Scientific Corporation (NYSE:BSX). These stocks are Activision Blizzard, Inc. (NASDAQ:ATVI), Stellantis N.V. (NYSE:STLA), Ecolab Inc. (NYSE:ECL), Eaton Corporation plc (NYSE:ETN), Norfolk Southern Corp. (NYSE:NSC), Dominion Energy Inc. (NYSE:D), and America Movil SAB de CV (NYSE:AMX). This group of stocks’ market valuations are similar to BSX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $1553 million. That figure was $3051 million in BSX’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Boston Scientific Corporation (NYSE:BSX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BSX is 48.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, BSX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on BSX were disappointed as the stock returned -1.1% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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