Was The Smart Money Right About Dumping HP Inc. (HPQ)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of HP Inc. (NYSE:HPQ).

Is HP Inc. (NYSE:HPQ) worth your attention right now? Investors who are in the know were cutting their exposure. The number of long hedge fund bets decreased by 8 lately. HP Inc. (NYSE:HPQ) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 59. Our calculations also showed that HPQ isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are tons of indicators stock market investors have at their disposal to grade their holdings. Some of the most useful indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the S&P 500 by a superb margin (see the details here).

Seth Klarman of Baupost Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: 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 biggest insurance companies to identify fast growing companies in various industries. 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 website to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action surrounding HP Inc. (NYSE:HPQ).

Hedge fund activity in HP Inc. (NYSE:HPQ)

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HPQ over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

More specifically, Baupost Group was the largest shareholder of HP Inc. (NYSE:HPQ), with a stake worth $313.8 million reported as of the end of June. Trailing Baupost Group was AQR Capital Management, which amassed a stake valued at $259.4 million. Arrowstreet Capital, Select Equity Group, and D E Shaw 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 Baupost Group allocated the biggest weight to HP Inc. (NYSE:HPQ), around 3.92% of its 13F portfolio. Maso Capital is also relatively very bullish on the stock, earmarking 1.97 percent of its 13F equity portfolio to HPQ.

Judging by the fact that HP Inc. (NYSE:HPQ) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that elected to cut their entire stakes by the end of the second quarter. Interestingly, Carl Icahn’s Icahn Capital LP said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth about $1092 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund said goodbye to about $148.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to HP Inc. (NYSE:HPQ). These stocks are McKesson Corporation (NYSE:MCK), Public Service Enterprise Group Incorporated (NYSE:PEG), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Credit Suisse Group AG (NYSE:CS), Nokia Corporation (NYSE:NOK), Zimmer Biomet Holdings Inc (NYSE:ZBH), and Rockwell Automation Inc. (NYSE:ROK). This group of stocks’ market values are similar to HPQ’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1120 million. That figure was $1107 million in HPQ’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 bullish hedge fund positions. HP Inc. (NYSE:HPQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HPQ is 36.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately HPQ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HPQ investors were disappointed as the stock returned 4% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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