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 ResMed Inc. (NYSE:RMD) and determine whether hedge funds had an edge regarding this stock.
ResMed Inc. (NYSE:RMD) shareholders have witnessed an increase in hedge fund sentiment lately. RMD was in 33 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with RMD positions at the end of the previous quarter. Our calculations also showed that RMD 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.
In the 21st century investor’s toolkit there are many methods stock market investors can use to analyze publicly traded companies. A couple of the less known methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the top money managers can outclass the S&P 500 by a solid amount (see the details here).
Louis Navellier of Navellier & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. Now we’re going to take a peek at the latest hedge fund action encompassing ResMed Inc. (NYSE:RMD).
Hedge fund activity in ResMed Inc. (NYSE:RMD)
At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 57% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in RMD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in ResMed Inc. (NYSE:RMD) was held by AQR Capital Management, which reported holding $39 million worth of stock at the end of September. It was followed by Adage Capital Management with a $38.9 million position. Other investors bullish on the company included Motley Fool Asset Management, Sensato Capital Management, and PDT Partners. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to ResMed Inc. (NYSE:RMD), around 8.06% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, dishing out 2.58 percent of its 13F equity portfolio to RMD.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in ResMed Inc. (NYSE:RMD). Millennium Management had $9.3 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also made a $6.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Louis Navellier’s Navellier & Associates, and Bruce Kovner’s Caxton Associates LP.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ResMed Inc. (NYSE:RMD) but similarly valued. These stocks are PACCAR Inc (NASDAQ:PCAR), Tyson Foods, Inc. (NYSE:TSN), Ball Corporation (NYSE:BLL), and CRH PLC (NYSE:CRH). This group of stocks’ market values match RMD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCAR | 38 | 486230 | 2 |
| TSN | 41 | 906465 | -17 |
| BLL | 41 | 697826 | -3 |
| CRH | 10 | 131812 | 5 |
| Average | 32.5 | 555583 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $168 million in RMD’s case. Tyson Foods, Inc. (NYSE:TSN) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 10 bullish hedge fund positions. ResMed Inc. (NYSE:RMD) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on RMD as the stock returned 30.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
