Was The Smart Money Right About Medtronic plc (MDT)?

In this article you are going to find out whether hedge funds think Medtronic plc (NYSE:MDT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Medtronic plc (NYSE:MDT) has seen a decrease in activity from the world’s largest hedge funds lately. Medtronic plc (NYSE:MDT) was in 59 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 66. Our calculations also showed that MDT isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 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.

Cliff Asness of AQR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 fresh hedge fund action surrounding Medtronic plc (NYSE:MDT).

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

At Q4’s end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MDT over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Diamond Hill Capital was the largest shareholder of Medtronic plc (NYSE:MDT), with a stake worth $448.3 million reported as of the end of December. Trailing Diamond Hill Capital was Citadel Investment Group, which amassed a stake valued at $330.5 million. D E Shaw, Fisher Asset Management, and AQR 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 Tri Locum Partners allocated the biggest weight to Medtronic plc (NYSE:MDT), around 8.68% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, setting aside 6.33 percent of its 13F equity portfolio to MDT.

Due to the fact that Medtronic plc (NYSE:MDT) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of fund managers that decided to sell off their entire stakes in the fourth quarter. It’s worth mentioning that John Murphy’s Levin Easterly Partners sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $42.1 million in stock. Justin John Ferayorni’s fund, Tamarack Capital Management, also said goodbye to its stock, about $26 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the fourth quarter.

Let’s go over hedge fund activity in other stocks similar to Medtronic plc (NYSE:MDT). We will take a look at SAP SE (NYSE:SAP), NextEra Energy, Inc. (NYSE:NEE), Texas Instruments Incorporated (NASDAQ:TXN), Honeywell International Inc. (NYSE:HON), United Parcel Service, Inc. (NYSE:UPS), Union Pacific Corporation (NYSE:UNP), and Bristol Myers Squibb Company (NYSE:BMY). This group of stocks’ market caps are similar to MDT’s market cap.

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As you can see these stocks had an average of 60.4 hedge funds with bullish positions and the average amount invested in these stocks was $2690 million. That figure was $2815 million in MDT’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 14 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MDT is 48. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on MDT, though not to the same extent, as the stock returned 12.3% since the end of Q4 (through April 30th) and outperformed the market.

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

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