Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Baxter International Inc. (NYSE:BAX).
Baxter International Inc. (NYSE:BAX) has experienced an increase in support from the world’s most elite money managers of late. Our calculations also showed that BAX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 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.
Dan Loeb of Third Point
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s view the fresh hedge fund action encompassing Baxter International Inc. (NYSE:BAX).
What does smart money think about Baxter International Inc. (NYSE:BAX)?
Heading into the first quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in BAX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Baxter International Inc. (NYSE:BAX) was held by Third Point, which reported holding $1463.4 million worth of stock at the end of September. It was followed by Generation Investment Management with a $570.1 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Third Point allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 16.83% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, setting aside 3.74 percent of its 13F equity portfolio to BAX.
As aggregate interest increased, key hedge funds have been driving this bullishness. Generation Investment Management, managed by David Blood and Al Gore, initiated the most valuable position in Baxter International Inc. (NYSE:BAX). Generation Investment Management had $570.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $122.8 million position during the quarter. The other funds with brand new BAX positions are Aaron Cowen’s Suvretta Capital Management, Anand Parekh’s Alyeska Investment Group, and Amy Mulderry’s Tavio Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Baxter International Inc. (NYSE:BAX). These stocks are Lam Research Corporation (NASDAQ:LRCX), The Progressive Corporation (NYSE:PGR), BCE Inc. (NYSE:BCE), and Ross Stores, Inc. (NASDAQ:ROST). This group of stocks’ market valuations resemble BAX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LRCX | 52 | 2625592 | 0 |
| PGR | 48 | 1782118 | -5 |
| BCE | 19 | 219572 | 5 |
| ROST | 48 | 1029100 | 4 |
| Average | 41.75 | 1414096 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1414 million. That figure was $3520 million in BAX’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 19 bullish hedge fund positions. Baxter International Inc. (NYSE:BAX) 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on BAX as the stock returned -6% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
