Were Hedge Funds Right About Piling Into The Cooper Companies, Inc. (COO)?

In this article we are going to use hedge fund sentiment as a tool and determine whether The Cooper Companies, Inc. (NYSE:COO) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is The Cooper Companies, Inc. (NYSE:COO) a sound stock to buy now? The smart money was getting more optimistic. The number of long hedge fund positions increased by 9 recently. The Cooper Companies, Inc. (NYSE:COO) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that COO 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). There were 25 hedge funds in our database with COO positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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 biggest telecom companies to identify fast growing companies in various industries. 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. With all of this in mind we’re going to take a look at the key hedge fund action surrounding The Cooper Companies, Inc. (NYSE:COO).

Hedge fund activity in The Cooper Companies, Inc. (NYSE:COO)

At Q2’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COO over the last 20 quarters. So, let’s find out 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, David Blood and Al Gore’s Generation Investment Management has the biggest position in The Cooper Companies, Inc. (NYSE:COO), worth close to $567.6 million, amounting to 3.3% of its total 13F portfolio. Coming in second is Andreas Halvorsen of Viking Global, with a $98 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass Cliff Asness’s AQR Capital Management, Greg Poole’s Echo Street Capital Management and Michael Rockefeller and KarláKroeker’s Woodline Partners. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to The Cooper Companies, Inc. (NYSE:COO), around 3.27% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, earmarking 1.59 percent of its 13F equity portfolio to COO.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, established the biggest position in The Cooper Companies, Inc. (NYSE:COO). Echo Street Capital Management had $22.9 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also made a $22.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Seth Cogswell’s Running Oak Capital, and Donald Sussman’s Paloma Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Cooper Companies, Inc. (NYSE:COO) but similarly valued. These stocks are Warner Music Group Corp. (NASDAQ:WMG), Campbell Soup Company (NYSE:CPB), Essex Property Trust Inc (NYSE:ESS), Teladoc Health, Inc (NYSE:TDOC), Healthpeak Properties, Inc. (NYSE:PEAK), Tiffany & Co. (NYSE:TIF), and Hologic, Inc. (NASDAQ:HOLX). All of these stocks’ market caps are similar to COO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $961 million. That figure was $876 million in COO’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Healthpeak Properties, Inc. (NYSE:PEAK) is the least popular one with only 23 bullish hedge fund positions. The Cooper Companies, Inc. (NYSE:COO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COO is 53.4. 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 still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on COO as the stock returned 12.5% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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