Did Hedge Funds Make The Right Call On Stericycle Inc (SRCL)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Stericycle Inc (NASDAQ:SRCL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Stericycle Inc (NASDAQ:SRCL) a safe investment right now? The smart money was getting less bullish. The number of bullish hedge fund positions went down by 4 lately. Our calculations also showed that SRCL 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the new hedge fund action regarding Stericycle Inc (NASDAQ:SRCL).

How have hedgies been trading Stericycle Inc (NASDAQ:SRCL)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SRCL over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Generation Investment Management was the largest shareholder of Stericycle Inc (NASDAQ:SRCL), with a stake worth $157.3 million reported as of the end of September. Trailing Generation Investment Management was Ariel Investments, which amassed a stake valued at $141.6 million. Iridian Asset Management, Diamond Hill Capital, and Markel Gayner Asset Management 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 Silver Heights Capital Management allocated the biggest weight to Stericycle Inc (NASDAQ:SRCL), around 20.2% of its 13F portfolio. Dorset Management is also relatively very bullish on the stock, dishing out 8.25 percent of its 13F equity portfolio to SRCL.

Due to the fact that Stericycle Inc (NASDAQ:SRCL) has faced a decline in interest from the smart money, it’s easy to see that there is a sect of hedge funds that elected to cut their positions entirely in the first quarter. Interestingly, Justin John Ferayorni’s Tamarack Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $18.6 million in stock. Brandon Haley’s fund, Holocene Advisors, also sold off its stock, about $5.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Stericycle Inc (NASDAQ:SRCL). We will take a look at Life Storage, Inc. (NYSE:LSI), ONE Gas Inc (NYSE:OGS), LHC Group, Inc. (NASDAQ:LHCG), and Zions Bancorporation, National Association (NASDAQ:ZION). This group of stocks’ market values match SRCL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $572 million in SRCL’s case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 16 bullish hedge fund positions. Stericycle Inc (NASDAQ:SRCL) is not the least popular stock in this group but hedge fund interest is still below 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SRCL, though not to the same extent, as the stock returned 26% since Q1 and outperformed the market.

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