At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31. In this article, we will use that wealth of knowledge to determine whether or not Zimmer Biomet Holdings Inc (NYSE:ZBH) makes for a good investment right now.
Is Zimmer Biomet Holdings Inc (NYSE:ZBH) a splendid stock to buy now? The smart money is taking a bearish view. The number of bullish hedge fund positions went down by 1 in recent months. Our calculations also showed that ZBH isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s take a look at the key hedge fund action encompassing Zimmer Biomet Holdings Inc (NYSE:ZBH).
What have hedge funds been doing with Zimmer Biomet Holdings Inc (NYSE:ZBH)?
At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZBH over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Zimmer Biomet Holdings Inc (NYSE:ZBH) was held by JANA Partners, which reported holding $238 million worth of stock at the end of March. It was followed by Millennium Management with a $231.9 million position. Other investors bullish on the company included Citadel Investment Group, Healthcor Management LP, and Partner Fund Management.
Since Zimmer Biomet Holdings Inc (NYSE:ZBH) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that elected to cut their entire stakes heading into Q3. At the top of the heap, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management dropped the largest stake of the 700 funds monitored by Insider Monkey, totaling an estimated $12.2 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund sold off about $8.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). These stocks are MPLX LP (NYSE:MPLX), Corning Incorporated (NYSE:GLW), NXP Semiconductors NV (NASDAQ:NXPI), and Republic Services, Inc. (NYSE:RSG). This group of stocks’ market caps are closest to ZBH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MPLX | 10 | 399099 | -1 |
| GLW | 37 | 622563 | 7 |
| NXPI | 52 | 3358284 | -20 |
| RSG | 30 | 595673 | 0 |
| Average | 32.25 | 1243905 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1244 million. That figure was $1765 million in ZBH’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 10 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 ZBH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned -11.6% 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
