Did Hedge Funds Catch A Break With International Business Machines Corp. (IBM)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 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 September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought International Business Machines Corp. (NYSE:IBM) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in International Business Machines Corp. (NYSE:IBM) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that IBM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as ServiceNow Inc (NYSE:NOW), Sanofi (NASDAQ:SNY), and American Tower Corporation (NYSE:AMT) to gather more data points.

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. Keeping this in mind let’s view the key hedge fund action regarding International Business Machines Corp. (NYSE:IBM).

Steven Cohen of Point72 Asset Management

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

At third quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in IBM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in International Business Machines Corp. (NYSE:IBM) was held by Citadel Investment Group, which reported holding $685 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $398.2 million position. Other investors bullish on the company included Masters Capital Management, Point72 Asset Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to International Business Machines Corp. (NYSE:IBM), around 10.96% of its 13F portfolio. Breakline Capital is also relatively very bullish on the stock, designating 4.01 percent of its 13F equity portfolio to IBM.

Seeing as International Business Machines Corp. (NYSE:IBM) has witnessed falling interest from the smart money, it’s easy to see that there lies a certain “tier” of funds that slashed their positions entirely last quarter. At the top of the heap, Renaissance Technologies dropped the biggest investment of the 750 funds monitored by Insider Monkey, valued at about $63.1 million in stock, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management was right behind this move, as the fund said goodbye to about $7.6 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to International Business Machines Corp. (NYSE:IBM). These stocks are ServiceNow Inc (NYSE:NOW), Sanofi (NASDAQ:SNY), American Tower Corporation (NYSE:AMT), Amgen, Inc. (NASDAQ:AMGN), The Toronto-Dominion Bank (NYSE:TD), Intuitive Surgical, Inc. (NASDAQ:ISRG), and Snap Inc. (NYSE:SNAP). This group of stocks’ market valuations resemble IBM’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.6 hedge funds with bullish positions and the average amount invested in these stocks was $3615 million. That figure was $1405 million in IBM’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand The Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. International Business Machines Corp. (NYSE:IBM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBM is 41.7. 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. 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 still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on IBM as the stock returned 1.9% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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