Was The Smart Money Right About Intuit Inc. (INTU)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Intuit Inc. (NASDAQ:INTU).

Is Intuit Inc. (NASDAQ:INTU) a bargain? The best stock pickers were selling. The number of bullish hedge fund positions were trimmed by 2 recently. Intuit Inc. (NASDAQ:INTU) was in 66 hedge funds’ portfolios at the end of June. The all time high for this statistic is 68. Our calculations also showed that INTU 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.

Philippe Laffont of Coatue Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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. Keeping this in mind we’re going to review the latest hedge fund action surrounding Intuit Inc. (NASDAQ:INTU).

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

At second quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in INTU a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Terry Smith’s Fundsmith LLP has the biggest position in Intuit Inc. (NASDAQ:INTU), worth close to $2.2464 billion, corresponding to 6.2% of its total 13F portfolio. The second most bullish fund manager is Third Point, managed by Dan Loeb, which holds a $539.2 million position; 3.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise Michael Pausic’s Foxhaven Asset Management, Cliff Asness’s AQR Capital Management and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Foxhaven Asset Management allocated the biggest weight to Intuit Inc. (NASDAQ:INTU), around 7.25% of its 13F portfolio. Blue Whale Capital is also relatively very bullish on the stock, designating 6.94 percent of its 13F equity portfolio to INTU.

Seeing as Intuit Inc. (NASDAQ:INTU) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers that elected to cut their positions entirely in the second quarter. Intriguingly, Daniel S. Och’s OZ Management dumped the biggest position of all the hedgies tracked by Insider Monkey, worth close to $66.7 million in stock. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its stock, about $35.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Intuit Inc. (NASDAQ:INTU). These stocks are BlackRock, Inc. (NYSE:BLK), American Express Company (NYSE:AXP), Starbucks Corporation (NASDAQ:SBUX), Sanofi (NYSE:SNY), International Business Machines Corp. (NYSE:IBM), Applied Materials, Inc. (NASDAQ:AMAT), and Raytheon Technologies Corp (NYSE:RTX). All of these stocks’ market caps are closest to INTU’s market cap.

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As you can see these stocks had an average of 49.3 hedge funds with bullish positions and the average amount invested in these stocks was $6292 million. That figure was $5383 million in INTU’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Sanofi (NYSE:SNY) is the least popular one with only 16 bullish hedge fund positions. Intuit Inc. (NASDAQ:INTU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for INTU is 76. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on INTU as the stock returned 28% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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