How do you pick the next stock to invest in? One way would be to spend days 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 Steris Plc (NYSE:STE) and determine whether hedge funds had an edge regarding this stock.
Is Steris Plc (NYSE:STE) a superb investment right now? Hedge funds were taking an optimistic view. The number of long hedge fund bets increased by 5 recently. Steris Plc (NYSE:STE) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that STE 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to analyze the new hedge fund action surrounding Steris Plc (NYSE:STE).
How have hedgies been trading Steris Plc (NYSE:STE)?
At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in STE a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the number one position in Steris Plc (NYSE:STE), worth close to $194 million, accounting for 1.1% of its total 13F portfolio. Sitting at the No. 2 spot is Fisher Asset Management, led by Ken Fisher, holding a $102.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that hold long positions include Greg Poole’s Echo Street Capital Management, Renaissance Technologies and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Alight Capital allocated the biggest weight to Steris Plc (NYSE:STE), around 3.39% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, dishing out 2.93 percent of its 13F equity portfolio to STE.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Steris Plc (NYSE:STE). Balyasny Asset Management had $4.6 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Ran Pang’s Quantamental Technologies, and Renee Yao’s Neo Ivy Capital.
Let’s go over hedge fund activity in other stocks similar to Steris Plc (NYSE:STE). We will take a look at EXACT Sciences Corporation (NASDAQ:EXAS), Pinterest, Inc. (NYSE:PINS), Avangrid, Inc. (NYSE:AGR), Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), and Galapagos NV (NASDAQ:GLPG). This group of stocks’ market values are closest to STE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXAS | 43 | 993223 | 9 |
| PINS | 53 | 1067483 | 15 |
| AGR | 18 | 132976 | 0 |
| BURL | 38 | 1475273 | -2 |
| SYF | 46 | 1563925 | 9 |
| FMC | 42 | 548601 | 3 |
| GLPG | 13 | 151392 | -2 |
| Average | 36.1 | 847553 | 4.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $848 million. That figure was $545 million in STE’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Steris Plc (NYSE:STE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STE is 73.8. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately STE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STE were disappointed as the stock returned 4.3% 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.
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Disclosure: None. This article was originally published at Insider Monkey.
