Do These Hedge Funds Regret Selling Stanley Black & Decker, Inc. (SWK)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Stanley Black & Decker, Inc. (NYSE:SWK).

Stanley Black & Decker, Inc. (NYSE:SWK) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 41. SWK investors should be aware of a decrease in hedge fund sentiment lately. There were 36 hedge funds in our database with SWK positions at the end of the first quarter. Our calculations also showed that SWK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 58 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.

Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the latest hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).

How are hedge funds trading Stanley Black & Decker, Inc. (NYSE:SWK)?

At Q2’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in SWK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pzena Investment Management held the most valuable stake in Stanley Black & Decker, Inc. (NYSE:SWK), which was worth $355.6 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $78.2 million worth of shares. Junto Capital Management, Adage Capital Management, and PEAK6 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 SAYA Management allocated the biggest weight to Stanley Black & Decker, Inc. (NYSE:SWK), around 6.67% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, earmarking 3.26 percent of its 13F equity portfolio to SWK.

Because Stanley Black & Decker, Inc. (NYSE:SWK) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there were a few fund managers that slashed their full holdings in the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the 750 funds monitored by Insider Monkey, worth an estimated $20.1 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dropped about $7.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Stanley Black & Decker, Inc. (NYSE:SWK) but similarly valued. These stocks are Skyworks Solutions Inc (NASDAQ:SWKS), Trane Technologies plc (NYSE:TT), TELUS Corporation (NYSE:TU), FleetCor Technologies, Inc. (NYSE:FLT), Aptiv PLC (NYSE:APTV), FirstEnergy Corp. (NYSE:FE), and Simon Property Group, Inc (NYSE:SPG). All of these stocks’ market caps resemble SWK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $973 million. That figure was $807 million in SWK’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 15 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SWK is 49.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on SWK as the stock returned 19.7% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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