Do Hedge Funds Love Intuitive Surgical, Inc. (ISRG)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Intuitive Surgical, Inc. (NASDAQ:ISRG).

Is Intuitive Surgical, Inc. (NASDAQ:ISRG) going to take off soon? The best stock pickers are in a pessimistic mood. The number of long hedge fund bets fell by 1 lately. Our calculations also showed that ISRG 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Larry Robbins of Glenview Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the fresh hedge fund action regarding Intuitive Surgical, Inc. (NASDAQ:ISRG).

Hedge fund activity in Intuitive Surgical, Inc. (NASDAQ:ISRG)

At Q1’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the fourth quarter of 2019. On the other hand, there were a total of 40 hedge funds with a bullish position in ISRG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Intuitive Surgical, Inc. (NASDAQ:ISRG) was held by Fisher Asset Management, which reported holding $350.1 million worth of stock at the end of September. It was followed by GQG Partners with a $137.2 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to Intuitive Surgical, Inc. (NASDAQ:ISRG), around 3.45% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 3.12 percent of its 13F equity portfolio to ISRG.

Because Intuitive Surgical, Inc. (NASDAQ:ISRG) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of money managers that slashed their positions entirely heading into Q4. At the top of the heap, Arthur B Cohen and Joseph Healey’s Healthcor Management LP dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $49.4 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $28.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Intuitive Surgical, Inc. (NASDAQ:ISRG). We will take a look at The TJX Companies, Inc. (NYSE:TJX), Anthem Inc (NYSE:ANTM), The Estee Lauder Companies Inc (NYSE:EL), and The Southern Company (NYSE:SO). This group of stocks’ market valuations are closest to ISRG’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 54 hedge funds with bullish positions and the average amount invested in these stocks was $1850 million. That figure was $964 million in ISRG’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 33 bullish hedge fund positions. Intuitive Surgical, Inc. (NASDAQ:ISRG) 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately ISRG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ISRG investors were disappointed as the stock returned 13.6% 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.

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