Hedge Funds Have Never Been This Bullish On Baxter International Inc. (BAX)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Baxter International Inc. (NYSE:BAX) and determine whether the smart money was really smart about this stock.

Baxter International Inc. (NYSE:BAX) has experienced an increase in activity from the world’s largest hedge funds of late. Baxter International Inc. (NYSE:BAX) was in 59 hedge funds’ portfolios at the end of June. The all time high for this statistics is 54. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 50 hedge funds in our database with BAX holdings at the end of March. Our calculations also showed that BAX 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.

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 56 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.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Baxter International Inc. (NYSE:BAX).

What have hedge funds been doing with Baxter International Inc. (NYSE:BAX)?

At the end of the second quarter, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in BAX 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.

The largest stake in Baxter International Inc. (NYSE:BAX) was held by Generation Investment Management, which reported holding $913.2 million worth of stock at the end of September. It was followed by Third Point with a $344.4 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 7.81% of its 13F portfolio. Iron Triangle Partners is also relatively very bullish on the stock, dishing out 7.16 percent of its 13F equity portfolio to BAX.

As one would reasonably expect, specific money managers were breaking ground themselves. Suvretta Capital Management, managed by Aaron Cowen, assembled the most valuable position in Baxter International Inc. (NYSE:BAX). Suvretta Capital Management had $103.7 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also initiated a $30.3 million position during the quarter. The following funds were also among the new BAX investors: Sander Gerber’s Hudson Bay Capital Management, Henrik Rhenman’s Rhenman & Partners Asset Management, and Amy Mulderry’s Tavio Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Baxter International Inc. (NYSE:BAX) but similarly valued. These stocks are Itau Unibanco Holding SA (NYSE:ITUB), Biogen Inc. (NASDAQ:BIIB), The Charles Schwab Corporation (NYSE:SCHW), General Dynamics Corporation (NYSE:GD), Vodafone Group Plc (NASDAQ:VOD), National Grid plc (NYSE:NGG), and Ferrari N.V. (NYSE:RACE). This group of stocks’ market valuations are similar to BAX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $2132 million. That figure was $2583 million in BAX’s case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 2 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 overall hedge fund sentiment score for BAX is 81.3. 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. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately BAX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BAX were disappointed as the stock returned -2.6% 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 10 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.