Were Hedge Funds Right About Henry Schein, Inc. (HSIC)?

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 Henry Schein, Inc. (NASDAQ:HSIC).

Henry Schein, Inc. (NASDAQ:HSIC) has experienced a decrease in hedge fund sentiment in recent months. Henry Schein, Inc. (NASDAQ:HSIC) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that HSIC 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood of Generation Investment Management

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 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 we’re going to take a glance at the key hedge fund action surrounding Henry Schein, Inc. (NASDAQ:HSIC).

What does smart money think about Henry Schein, Inc. (NASDAQ:HSIC)?

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HSIC over the last 20 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, Generation Investment Management was the largest shareholder of Henry Schein, Inc. (NASDAQ:HSIC), with a stake worth $781.7 million reported as of the end of June. Trailing Generation Investment Management was AQR Capital Management, which amassed a stake valued at $88 million. D E Shaw, Renaissance Technologies, and Citadel Investment Group 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 Generation Investment Management allocated the biggest weight to Henry Schein, Inc. (NASDAQ:HSIC), around 4.51% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, dishing out 1.06 percent of its 13F equity portfolio to HSIC.

Since Henry Schein, Inc. (NASDAQ:HSIC) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few hedgies that decided to sell off their entire stakes in the second quarter. Intriguingly, Robert Joseph Caruso’s Select Equity Group said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $119.5 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also said goodbye to its stock, about $0.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Henry Schein, Inc. (NASDAQ:HSIC). We will take a look at Ciena Corporation (NYSE:CIEN), Chegg Inc (NYSE:CHGG), Mylan N.V. (NASDAQ:MYL), Gold Fields Limited (NYSE:GFI), Caesars Entertainment, Inc. (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), and Carnival Corporation & plc (NYSE:CUK). This group of stocks’ market valuations are closest to HSIC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1223 million. That figure was $1057 million in HSIC’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 14 bullish hedge fund positions. Henry Schein, Inc. (NASDAQ:HSIC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HSIC is 56.9. 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 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 beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on HSIC, though not to the same extent, as the stock returned 8.9% since the end of Q2 (through October 30th) and outperformed the market.

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