Is Johnson & Johnson (JNJ) Going to Burn These Hedge Funds?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Johnson & Johnson (NYSE:JNJ), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Johnson & Johnson (NYSE:JNJ) was in 88 hedge funds’ portfolios at the end of June. The all time high for this statistic is 94. JNJ investors should be aware of an increase in hedge fund interest lately. There were 81 hedge funds in our database with JNJ holdings at the end of March. Our calculations also showed that JNJ ranked 27th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding Johnson & Johnson (NYSE:JNJ).

Do Hedge Funds Think JNJ Is A Good Stock To Buy Now?

At second quarter’s end, a total of 88 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in JNJ over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the largest position in Johnson & Johnson (NYSE:JNJ). Fundsmith LLP has a $1.1788 billion position in the stock, comprising 3.3% of its 13F portfolio. On Fundsmith LLP’s heels is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $1.1414 billion position; 1.4% of its 13F portfolio is allocated to the company. Other peers that hold long positions comprise Cliff Asness’s AQR Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Sphera Global Healthcare Fund allocated the biggest weight to Johnson & Johnson (NYSE:JNJ), around 4.52% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, designating 4.11 percent of its 13F equity portfolio to JNJ.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, created the most outsized position in Johnson & Johnson (NYSE:JNJ). Paloma Partners had $17.5 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also initiated a $16.2 million position during the quarter. The other funds with new positions in the stock are Dan Kozlowski’s Plaisance Capital, Lee Ainslie’s Maverick Capital, and Bruce Kovner’s Caxton Associates LP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Johnson & Johnson (NYSE:JNJ) but similarly valued. We will take a look at Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Mastercard Incorporated (NYSE:MA), Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Home Depot, Inc. (NYSE:HD), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market valuations are closest to JNJ’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 99.1 hedge funds with bullish positions and the average amount invested in these stocks was $16039 million. That figure was $7057 million in JNJ’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 64 bullish hedge fund positions. Johnson & Johnson (NYSE:JNJ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for JNJ is 51.1. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.1% in 2021 through September 20th and surpassed the market again by 6.9 percentage points. Unfortunately JNJ wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); JNJ investors were disappointed as the stock returned 0% since the end of June (through 9/20) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.