While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Varian Medical Systems, Inc. (NYSE:VAR).
Is Varian Medical Systems, Inc. (NYSE:VAR) an exceptional investment today? Money managers are getting less optimistic. The number of long hedge fund bets went down by 7 recently. Our calculations also showed that VAR isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the latest hedge fund action encompassing Varian Medical Systems, Inc. (NYSE:VAR).
Hedge fund activity in Varian Medical Systems, Inc. (NYSE:VAR)
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VAR over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Varian Medical Systems, Inc. (NYSE:VAR), with a stake worth $114.3 million reported as of the end of March. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $83 million. Renaissance Technologies, GLG Partners, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Since Varian Medical Systems, Inc. (NYSE:VAR) has faced a decline in interest from the smart money, it’s easy to see that there exists a select few hedgies that slashed their full holdings in the second quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest investment of all the hedgies watched by Insider Monkey, worth an estimated $20 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund said goodbye to about $15.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Varian Medical Systems, Inc. (NYSE:VAR). These stocks are CenturyLink, Inc. (NYSE:CTL), Godaddy Inc (NYSE:GDDY), MarketAxess Holdings Inc. (NASDAQ:MKTX), and Atmos Energy Corporation (NYSE:ATO). This group of stocks’ market values match VAR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTL | 27 | 1040787 | -5 |
| GDDY | 44 | 2553762 | -4 |
| MKTX | 18 | 365542 | 3 |
| ATO | 14 | 397907 | -6 |
| Average | 25.75 | 1089500 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $1089 million. That figure was $621 million in VAR’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 14 bullish hedge fund positions. Varian Medical Systems, Inc. (NYSE:VAR) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VAR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VAR investors were disappointed as the stock returned -12.5% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
