Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Henry Schein, Inc. (NASDAQ:HSIC) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Henry Schein, Inc. (NASDAQ:HSIC) investors should be aware of an increase in hedge fund interest lately. Our calculations also showed that HSIC 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 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 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.
David Blood of Generation Investment Management
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. Now let’s take a look at the latest hedge fund action encompassing Henry Schein, Inc. (NASDAQ:HSIC).
What have hedge funds been doing with Henry Schein, Inc. (NASDAQ:HSIC)?
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HSIC over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Generation Investment Management held the most valuable stake in Henry Schein, Inc. (NASDAQ:HSIC), which was worth $688.1 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $248.3 million worth of shares. D E Shaw, AQR Capital Management, and Renaissance Technologies 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 Generation Investment Management allocated the biggest weight to Henry Schein, Inc. (NASDAQ:HSIC), around 4.4% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 1.57 percent of its 13F equity portfolio to HSIC.
Now, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, created the biggest position in Henry Schein, Inc. (NASDAQ:HSIC). Millennium Management had $16.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $9.6 million investment in the stock during the quarter. The other funds with brand new HSIC positions are Donald Sussman’s Paloma Partners, Ken Griffin’s Citadel Investment Group, and Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Henry Schein, Inc. (NASDAQ:HSIC) but similarly valued. These stocks are Mohawk Industries, Inc. (NYSE:MHK), Amdocs Limited (NASDAQ:DOX), Federal Realty Investment Trust (NYSE:FRT), and Grupo Aval Acciones y Valores S.A. (NYSE:AVAL). This group of stocks’ market caps are closest to HSIC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MHK | 40 | 1437266 | 5 |
| DOX | 26 | 623312 | 0 |
| FRT | 22 | 108682 | -4 |
| AVAL | 7 | 22903 | 0 |
| Average | 23.75 | 548041 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $1380 million in HSIC’s case. Mohawk Industries, Inc. (NYSE:MHK) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 7 bullish hedge fund positions. Henry Schein, Inc. (NASDAQ:HSIC) 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on HSIC, though not to the same extent, as the stock returned -22.6% during the first two and a half months of 2020 (through March 16th) 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.
