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 Steris Plc (NYSE:STE) and determine whether hedge funds had an edge regarding this stock.
Steris Plc (NYSE:STE) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that STE 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.
Sander Gerber of Hudson Bay Capital
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. Keeping this in mind let’s review the recent hedge fund action regarding Steris Plc (NYSE:STE).
How are hedge funds trading Steris Plc (NYSE:STE)?
At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in STE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Steris Plc (NYSE:STE), which was worth $266.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $113.6 million worth of shares. Echo Street Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Aubrey Capital Management allocated the biggest weight to Steris Plc (NYSE:STE), around 2.63% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 1.84 percent of its 13F equity portfolio to STE.
Consequently, key hedge funds have been driving this bullishness. Sandler Capital Management, managed by Andrew Sandler, assembled the biggest position in Steris Plc (NYSE:STE). Sandler Capital Management had $5.7 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Dipak Patel’s Alight Capital, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Adam Usdan’s Trellus Management Company.
Let’s also examine hedge fund activity in other stocks similar to Steris Plc (NYSE:STE). We will take a look at CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Rollins, Inc. (NYSE:ROL), Alliant Energy Corporation (NYSE:LNT), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks’ market values are closest to STE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRWD | 65 | 1301564 | 17 |
| ROL | 25 | 447589 | -9 |
| LNT | 30 | 602098 | 2 |
| MLM | 44 | 1436776 | -8 |
| Average | 41 | 947007 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $947 million. That figure was $555 million in STE’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Rollins, Inc. (NYSE:ROL) is the least popular one with only 25 bullish hedge fund positions. Steris Plc (NYSE:STE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 and surpassed the market by 15.5 percentage points. Unfortunately STE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); STE investors were disappointed as the stock returned 9.9% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
