In this article we will check out the progression of hedge fund sentiment towards Science Applications International Corp (NYSE:SAIC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Science Applications International Corp (NYSE:SAIC) was in 18 hedge funds’ portfolios at the end of March. The all time high for this statistic is 35. SAIC has experienced a decrease in enthusiasm from smart money recently. There were 28 hedge funds in our database with SAIC holdings at the end of December. Our calculations also showed that SAIC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.
Phillip Gross of Adage Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 check out the recent hedge fund action regarding Science Applications International Corp (NYSE:SAIC).
Do Hedge Funds Think SAIC Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in SAIC a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Polaris Capital Management, managed by Bernard Horn, holds the largest position in Science Applications International Corp (NYSE:SAIC). Polaris Capital Management has a $43.4 million position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is Sunriver Management, led by Will Cook, holding a $40.5 million position; 7.6% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish consist of Anthony Bozza’s Lakewood Capital Management, Murray Stahl’s Horizon Asset Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Sunriver Management allocated the biggest weight to Science Applications International Corp (NYSE:SAIC), around 7.57% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, earmarking 1.57 percent of its 13F equity portfolio to SAIC.
Since Science Applications International Corp (NYSE:SAIC) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their positions entirely heading into Q2. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the biggest stake of all the hedgies followed by Insider Monkey, totaling an estimated $45.6 million in stock, and Mina Faltas’s Washington Harbour Partners was right behind this move, as the fund cut about $17.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 10 funds heading into Q2.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Science Applications International Corp (NYSE:SAIC) but similarly valued. We will take a look at Curtiss-Wright Corp. (NYSE:CW), Nomad Foods Limited (NYSE:NOMD), Lancaster Colony Corporation (NASDAQ:LANC), Nevro Corp (NYSE:NVRO), Xerox Holdings Corporation (NYSE:XRX), SelectQuote, Inc. (NYSE:SLQT), and Magnite Inc. (NASDAQ:MGNI). All of these stocks’ market caps match SAIC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CW | 22 | 208527 | -1 |
| NOMD | 25 | 324331 | -3 |
| LANC | 22 | 246061 | 3 |
| NVRO | 29 | 649613 | -1 |
| XRX | 30 | 1044775 | 3 |
| SLQT | 17 | 185055 | -2 |
| MGNI | 25 | 335746 | -4 |
| Average | 24.3 | 427730 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $208 million in SAIC’s case. Xerox Holdings Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand SelectQuote, Inc. (NYSE:SLQT) is the least popular one with only 17 bullish hedge fund positions. Science Applications International Corp (NYSE:SAIC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SAIC is 14.3. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SAIC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SAIC investors were disappointed as the stock returned 6.3% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
