Should I Avoid Agilent Technologies Inc. (A)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Agilent Technologies Inc. (NYSE:A).

Agilent Technologies Inc. (NYSE:A) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 52. A investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 42 hedge funds in our database with A positions at the end of the first quarter. Our calculations also showed that A 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.

Bill Ackman of Pershing Square

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 let’s take a look at the key hedge fund action encompassing Agilent Technologies Inc. (NYSE:A).

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

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 38 hedge funds with a bullish position in A a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Pershing Square held the most valuable stake in Agilent Technologies Inc. (NYSE:A), which was worth $1728.8 million at the end of the second quarter. On the second spot was Impax Asset Management which amassed $599.1 million worth of shares. Cantillon Capital Management, Arrowstreet Capital, and Echo Street Capital Management 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 Pershing Square allocated the biggest weight to Agilent Technologies Inc. (NYSE:A), around 16.14% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, setting aside 4.49 percent of its 13F equity portfolio to A.

Seeing as Agilent Technologies Inc. (NYSE:A) has faced bearish sentiment from the smart money, we can see that there is a sect of hedgies that slashed their positions entirely in the second quarter. Intriguingly, Tim Hurd and Ed Magnus’s BlueSpruce Investments said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, valued at about $207.8 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $73.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Agilent Technologies Inc. (NYSE:A). These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Schlumberger Limited. (NYSE:SLB), TE Connectivity Ltd. (NYSE:TEL), BCE Inc. (NYSE:BCE), Match Group, Inc. (NASDAQ:MTCH), Marriott International Inc (NASDAQ:MAR), and L3Harris Technologies, Inc. (NYSE:LHX). This group of stocks’ market values match A’s market value.

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As you can see these stocks had an average of 42.9 hedge funds with bullish positions and the average amount invested in these stocks was $2152 million. That figure was $3891 million in A’s case. Match Group, Inc. (NASDAQ:MTCH) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 14 bullish hedge fund positions. Agilent Technologies Inc. (NYSE:A) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for A is 50. 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. A small number of hedge funds were also right about betting on A as the stock returned 1.8% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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