Should I Avoid HP Inc. (HPQ)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of HP Inc. (NYSE:HPQ) based on that data.

HP Inc. (NYSE:HPQ) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 59. HPQ has seen a decrease in hedge fund sentiment in recent months. There were 43 hedge funds in our database with HPQ holdings at the end of March. Our calculations also showed that HPQ isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Cliff Asness of AQR Capital Management

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 we’re going to take a look at the key hedge fund action regarding HP Inc. (NYSE:HPQ).

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

Heading into the third quarter of 2021, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HPQ over the last 24 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in HP Inc. (NYSE:HPQ). Arrowstreet Capital has a $532.3 million position in the stock, comprising 0.7% of its 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $259.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass Benjamin A. Smith’s Laurion Capital Management, Noam Gottesman’s GLG Partners and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Te Ahumairangi Investment Management allocated the biggest weight to HP Inc. (NYSE:HPQ), around 1.54% of its 13F portfolio. Hourglass Capital is also relatively very bullish on the stock, earmarking 1.19 percent of its 13F equity portfolio to HPQ.

Because HP Inc. (NYSE:HPQ) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers that elected to cut their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest position of the 750 funds tracked by Insider Monkey, totaling about $24.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $19.9 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to HP Inc. (NYSE:HPQ). These stocks are Palo Alto Networks Inc (NYSE:PANW), Mizuho Financial Group Inc. (NYSE:MFG), Suncor Energy Inc. (NYSE:SU), Discover Financial Services (NYSE:DFS), The Hershey Company (NYSE:HSY), ResMed Inc. (NYSE:RMD), and XPeng Inc. (NYSE:XPEV). All of these stocks’ market caps are closest to HPQ’s market cap.

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As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $1249 million. That figure was $1277 million in HPQ’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. HP Inc. (NYSE:HPQ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HPQ is 47. 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 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 beat the market again by 4.4 percentage points. Unfortunately HPQ wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on HPQ were disappointed as the stock returned -7.7% since the end of June (through 10/11) 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 many of these stocks already outperformed the market since 2019.

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