Did Hedge Funds Get IDEXX Laboratories, Inc. (IDXX) Right?

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 IDEXX Laboratories, Inc. (NASDAQ:IDXX) and determine whether hedge funds had an edge regarding this stock.

IDEXX Laboratories, Inc. (NASDAQ:IDXX) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. IDEXX Laboratories, Inc. (NASDAQ:IDXX) was in 43 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 49. There were 39 hedge funds in our database with IDXX holdings at the end of June. Our calculations also showed that IDXX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Donald Sussman of Paloma Partners

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. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding IDEXX Laboratories, Inc. (NASDAQ:IDXX).

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

At the end of September, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in IDXX a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Fundsmith LLP was the largest shareholder of IDEXX Laboratories, Inc. (NASDAQ:IDXX), with a stake worth $2638.2 million reported as of the end of September. Trailing Fundsmith LLP was Arrowstreet Capital, which amassed a stake valued at $294.8 million. Echo Street Capital Management, Rock Springs Capital Management, and Select Equity 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 Fundsmith LLP allocated the biggest weight to IDEXX Laboratories, Inc. (NASDAQ:IDXX), around 7.29% of its 13F portfolio. Montanaro Asset Management is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to IDXX.

Now, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in IDEXX Laboratories, Inc. (NASDAQ:IDXX). Citadel Investment Group had $29.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Donald Sussman’s Paloma Partners, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s also examine hedge fund activity in other stocks similar to IDEXX Laboratories, Inc. (NASDAQ:IDXX). We will take a look at Align Technology, Inc. (NASDAQ:ALGN), Lululemon Athletica inc. (NASDAQ:LULU), Public Storage (NYSE:PSA), NXP Semiconductors NV (NASDAQ:NXPI), Ferrari N.V. (NYSE:RACE), Itau Unibanco Holding SA (NYSE:ITUB), and Takeda Pharmaceutical Company Limited (NYSE:TAK). This group of stocks’ market caps resemble IDXX’s market cap.

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As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1045 million. That figure was $3699 million in IDXX’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 15 bullish hedge fund positions. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IDXX is 74.2. 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, IDXX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on IDXX were disappointed as the stock returned -18.4% 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.

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