We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Science Applications International Corp (NYSE:SAIC).
Science Applications International Corp (NYSE:SAIC) has experienced an increase in hedge fund interest lately. Our calculations also showed that SAIC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the fresh hedge fund action regarding Science Applications International Corp (NYSE:SAIC).
How have hedgies been trading Science Applications International Corp (NYSE:SAIC)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the third quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in SAIC a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Horizon Asset Management held the most valuable stake in Science Applications International Corp (NYSE:SAIC), which was worth $47.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $45.8 million worth of shares. Adage Capital Management, Millennium Management, and York Capital 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 Simcoe Capital Management allocated the biggest weight to Science Applications International Corp (NYSE:SAIC), around 5.04% of its 13F portfolio. York Capital Management is also relatively very bullish on the stock, setting aside 1.51 percent of its 13F equity portfolio to SAIC.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Intrinsic Edge Capital, managed by Mark Coe, initiated the biggest position in Science Applications International Corp (NYSE:SAIC). Intrinsic Edge Capital had $7.8 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also initiated a $7.5 million position during the quarter. The other funds with new positions in the stock are David Rosen’s Rubric Capital Management, Peter Muller’s PDT Partners, and Qing Li’s Sciencast Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Science Applications International Corp (NYSE:SAIC) but similarly valued. We will take a look at The Wendy’s Company (NASDAQ:WEN), L Brands Inc (NYSE:LB), Integra Lifesciences Holdings Corp (NASDAQ:IART), and Blackstone Mortgage Trust Inc (NYSE:BXMT). All of these stocks’ market caps match SAIC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WEN | 28 | 1039723 | -9 |
| LB | 46 | 681310 | 7 |
| IART | 17 | 115558 | -6 |
| BXMT | 15 | 64533 | -2 |
| Average | 26.5 | 475281 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $299 million in SAIC’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Blackstone Mortgage Trust Inc (NYSE:BXMT) is the least popular one with only 15 bullish hedge fund positions. Science Applications International Corp (NYSE:SAIC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on SAIC, though not to the same extent, as the stock returned -22.3% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
