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

At Insider Monkey, we pore over the filings of nearly 873 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 June 30th. In this article, we will use that wealth of knowledge to determine whether or not HP Inc. (NYSE:HPQ) makes for a good investment right now.

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 interest lately. There were 43 hedge funds in our database with HPQ positions at the end of the first quarter. Our calculations also showed that HPQ 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Noam Gottesman of GLG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium 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 peek at the new hedge fund action encompassing HP Inc. (NYSE:HPQ).

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

At second quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in 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. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in HP Inc. (NYSE:HPQ). Arrowstreet Capital has a $532.3 million position in the stock, comprising 0.7% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $259.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise 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.

Seeing as HP Inc. (NYSE:HPQ) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes heading into Q3. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $24.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $19.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to HP Inc. (NYSE:HPQ). These stocks are Palo Alto Networks Inc (NASDAQ: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). This group of stocks’ market valuations are similar to HPQ’s market valuation.

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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 (NASDAQ: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 29.6% in 2021 through November 5th and beat the market again by 3.1 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 6.5% since the end of June (through 11/5) 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.