Were Hedge Funds Right About Becton, Dickinson and Company (BDX)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Becton, Dickinson and Company (NYSE:BDX) changed recently.

Is Becton, Dickinson and Company (NYSE:BDX) a buy, sell, or hold? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund positions shrunk by 3 recently. Becton, Dickinson and Company (NYSE:BDX) was in 53 hedge funds’ portfolios at the end of June. The all time high for this statistics is 56. Our calculations also showed that BDX 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.

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 58 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.

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 let’s view the fresh hedge fund action surrounding Becton, Dickinson and Company (NYSE:BDX).

What does smart money think about Becton, Dickinson and Company (NYSE:BDX)?

Heading into the third quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in BDX over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Becton, Dickinson and Company (NYSE:BDX) was held by Generation Investment Management, which reported holding $617.6 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $290.5 million position. Other investors bullish on the company included Citadel Investment Group, Healthcor Management LP, and Intermede Investment Partners. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Becton, Dickinson and Company (NYSE:BDX), around 6.08% of its 13F portfolio. Intermede Investment Partners is also relatively very bullish on the stock, designating 4.83 percent of its 13F equity portfolio to BDX.

Due to the fact that Becton, Dickinson and Company (NYSE:BDX) has experienced falling interest from the smart money, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes heading into Q3. Interestingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest investment of all the hedgies watched by Insider Monkey, totaling about $36.5 million in stock, and Christopher James’s Partner Fund Management was right behind this move, as the fund said goodbye to about $34.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Becton, Dickinson and Company (NYSE:BDX). These stocks are Rio Tinto Group (NYSE:RIO), Crown Castle International Corp. (REIT) (NYSE:CCI), Cigna Corporation (NYSE:CI), Prologis Inc (NYSE:PLD), Caterpillar Inc. (NYSE:CAT), Dominion Energy Inc. (NYSE:D), and The Goldman Sachs Group, Inc. (NYSE:GS). All of these stocks’ market caps resemble BDX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.4 hedge funds with bullish positions and the average amount invested in these stocks was $1885 million. That figure was $1971 million in BDX’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. Becton, Dickinson and Company (NYSE:BDX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BDX is 62.1. 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 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately BDX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BDX were disappointed as the stock returned 0.8% since the end of June (through 10/23) 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 many of these stocks already outperformed the market so far this year.

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