Hedge Funds Have Never Been This Bullish On Abbott Laboratories (ABT)

Is Abbott Laboratories (NYSE:ABT) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Abbott Laboratories (NYSE:ABT) was in 62 hedge funds’ portfolios at the end of December. ABT investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 65 hedge funds in our database with ABT holdings at the end of the previous quarter. Our calculations also showed that ABT 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ric Dillon of Diamond Hill Capital

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 we’re going to take a glance at the latest hedge fund action encompassing Abbott Laboratories (NYSE:ABT).

What does smart money think about Abbott Laboratories (NYSE:ABT)?

At Q4’s end, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 51 hedge funds with a bullish position in ABT 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 Abbott Laboratories (NYSE:ABT) was held by GQG Partners, which reported holding $653.8 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $554.4 million position. Other investors bullish on the company included Adage Capital Management, Sirios Capital Management, and Duquesne Capital. In terms of the portfolio weights assigned to each position Sirios Capital Management allocated the biggest weight to Abbott Laboratories (NYSE:ABT), around 5.35% of its 13F portfolio. GQG Partners is also relatively very bullish on the stock, earmarking 4.51 percent of its 13F equity portfolio to ABT.

Due to the fact that Abbott Laboratories (NYSE:ABT) has witnessed falling interest from hedge fund managers, it’s easy to see that there is a sect of fund managers that slashed their entire stakes by the end of the third quarter. Interestingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP said goodbye to the biggest position of all the hedgies watched by Insider Monkey, valued at about $63.3 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also cut its stock, about $46.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Abbott Laboratories (NYSE:ABT) but similarly valued. We will take a look at Medtronic plc (NYSE:MDT), Unilever N.V. (NYSE:UN), Bristol Myers Squibb Company (NYSE:BMY), and Unilever plc (NYSE:UL). This group of stocks’ market valuations resemble ABT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $2892 million. That figure was $2056 million in ABT’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand Unilever N.V. (NYSE:UN) is the least popular one with only 15 bullish hedge fund positions. Abbott Laboratories (NYSE:ABT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately ABT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ABT were disappointed as the stock returned -5.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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