Is Zoetis (ZTS) Stock A Buy or Sell?

The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Zoetis Inc (NYSE:ZTS).

Is Zoetis (ZTS) stock a buy or sell? The best stock pickers were taking an optimistic view. The number of bullish hedge fund bets increased by 3 recently. Zoetis Inc (NYSE:ZTS) was in 61 hedge funds’ portfolios at the end of December. The all time high for this statistic is 60. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZTS isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).

Ian Wace of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article). Keeping this in mind we’re going to view the key hedge fund action surrounding Zoetis Inc (NYSE:ZTS).

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

At Q4’s end, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in ZTS over the last 22 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Cantillon Capital Management was the largest shareholder of Zoetis Inc (NYSE:ZTS), with a stake worth $481.7 million reported as of the end of December. Trailing Cantillon Capital Management was Marshall Wace LLP, which amassed a stake valued at $474.1 million. Ako Capital, D E Shaw, and Intermede Investment Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Intermede Investment Partners allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 5.15% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, setting aside 4.22 percent of its 13F equity portfolio to ZTS.

There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. We will take a look at Canadian National Railway Company (NYSE:CNI), Altria Group Inc (NYSE:MO), Fiserv, Inc. (NASDAQ:FISV), NIO Inc. (NYSE:NIO), Automatic Data Processing (NASDAQ:ADP), Cigna Corporation (NYSE:CI), and Snap Inc. (NYSE:SNAP). This group of stocks’ market valuations match ZTS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 52 hedge funds with bullish positions and the average amount invested in these stocks was $3048 million. That figure was $2390 million in ZTS’s case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 31 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZTS is 61.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately ZTS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ZTS were disappointed as the stock returned -7.3% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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