How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Thermo Fisher Scientific Inc. (NYSE:TMO).
Thermo Fisher Scientific Inc. (NYSE:TMO) has seen an increase in activity from the world’s largest hedge funds recently. TMO was in 68 hedge funds’ portfolios at the end of the first quarter of 2019. There were 67 hedge funds in our database with TMO holdings at the end of the previous quarter. Our calculations also showed that TMO isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most market participants, hedge funds are viewed as underperforming, old investment tools of the past. While there are greater than 8000 funds in operation today, Our researchers look at the upper echelon of this group, around 750 funds. These hedge fund managers command most of all hedge funds’ total capital, and by monitoring their highest performing stock picks, Insider Monkey has come up with a number of investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Let’s review the latest hedge fund action surrounding Thermo Fisher Scientific Inc. (NYSE:TMO).
What does the smart money think about Thermo Fisher Scientific Inc. (NYSE:TMO)?
At Q1’s end, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in TMO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Generation Investment Management was the largest shareholder of Thermo Fisher Scientific Inc. (NYSE:TMO), with a stake worth $696.7 million reported as of the end of March. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $418.1 million. Viking Global, Cantillon Capital Management, and Glenview Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers have been driving this bullishness. Tiger Eye Capital, managed by Ben Gambill, initiated the biggest position in Thermo Fisher Scientific Inc. (NYSE:TMO). Tiger Eye Capital had $17.8 million invested in the company at the end of the quarter. Mark Kingdon’s Kingdon Capital also initiated a $15.8 million position during the quarter. The following funds were also among the new TMO investors: Jay Genzer’s Thames Capital Management, Vishal Saluja and Pham Quang’s Endurant Capital Management, and Justin John Ferayorni’s Tamarack Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Thermo Fisher Scientific Inc. (NYSE:TMO). These stocks are NVIDIA Corporation (NASDAQ:NVDA), Royal Bank of Canada (NYSE:RY), Altria Group Inc (NYSE:MO), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market valuations match TMO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVDA | 43 | 1595434 | 2 |
| RY | 17 | 552491 | 3 |
| MO | 36 | 823787 | -5 |
| COST | 44 | 3323751 | -4 |
| Average | 35 | 1573866 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1574 million. That figure was $4436 million in TMO’s case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Thermo Fisher Scientific Inc. (NYSE:TMO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately TMO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TMO were disappointed as the stock returned -2.1% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
