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 Baker Hughes Company (NYSE:BKR).
Is BKR a good stock to buy? Baker Hughes Company (NYSE:BKR) has experienced a decrease in enthusiasm from smart money in recent months. Baker Hughes Company (NYSE:BKR) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic is 42. There were 42 hedge funds in our database with BKR holdings at the end of March. Our calculations also showed that BKR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.
Mark Kingdon of Kingdon Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to view the key hedge fund action encompassing Baker Hughes Company (NYSE:BKR).
Do Hedge Funds Think BKR Is A Good Stock To Buy Now?
At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BKR over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the biggest position in Baker Hughes Company (NYSE:BKR), worth close to $542.9 million, comprising 2.1% of its total 13F portfolio. Coming in second is David Cohen and Harold Levy of Iridian Asset Management, with a $97.8 million position; 1.7% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Renaissance Technologies, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Alden Global Capital allocated the biggest weight to Baker Hughes Company (NYSE:BKR), around 8.35% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, earmarking 5.37 percent of its 13F equity portfolio to BKR.
Judging by the fact that Baker Hughes Company (NYSE:BKR) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that elected to cut their positions entirely heading into Q3. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dumped the largest stake of all the hedgies tracked by Insider Monkey, totaling close to $47 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $44 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to Baker Hughes Company (NYSE:BKR). We will take a look at AmerisourceBergen Corporation (NYSE:ABC), Splunk Inc (NASDAQ:SPLK), Canon Inc. (NYSE:CAJ), Fortive Corporation (NYSE:FTV), McCormick & Company, Incorporated (NYSE:MKC), Cerner Corporation (NASDAQ:CERN), and United Microelectronics Corp (NYSE:UMC). This group of stocks’ market caps match BKR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABC | 43 | 1005836 | 0 |
| SPLK | 47 | 1185992 | 6 |
| CAJ | 8 | 53729 | -1 |
| FTV | 31 | 2235231 | 4 |
| MKC | 34 | 2032436 | -1 |
| CERN | 38 | 1394559 | -2 |
| UMC | 10 | 141218 | -1 |
| Average | 30.1 | 1149857 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $1150 million. That figure was $1013 million in BKR’s case. Splunk Inc (NASDAQ:SPLK) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 8 bullish hedge fund positions. Baker Hughes Company (NYSE:BKR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BKR is 72.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on BKR as the stock returned 12.2% since the end of Q2 (through 10/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Baker Hughes Co (NYSE:BKR)
Follow Baker Hughes Co (NYSE:BKR)
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Disclosure: None. This article was originally published at Insider Monkey.
