Were Hedge Funds Right About Souring On Intuitive Surgical, Inc. (ISRG)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtIntuitive Surgical, Inc. (NASDAQ:ISRG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Intuitive Surgical, Inc. (NASDAQ:ISRG) the right investment to pursue these days? Money managers were selling. The number of long hedge fund bets shrunk by 1 recently. Our calculations also showed that ISRG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ISRG was in 50 hedge funds’ portfolios at the end of March. There were 51 hedge funds in our database with ISRG positions at the end of the previous quarter.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Samuel Isaly of OrbiMed Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the latest hedge fund action surrounding Intuitive Surgical, Inc. (NASDAQ:ISRG).

What have hedge funds been doing with Intuitive Surgical, Inc. (NASDAQ:ISRG)?

At the end of the first quarter, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the fourth quarter of 2019. On the other hand, there were a total of 40 hedge funds with a bullish position in ISRG a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Intuitive Surgical, Inc. (NASDAQ:ISRG) was held by Fisher Asset Management, which reported holding $350.1 million worth of stock at the end of September. It was followed by GQG Partners with a $137.2 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Unio Capital allocated the biggest weight to Intuitive Surgical, Inc. (NASDAQ:ISRG), around 3.45% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 3.12 percent of its 13F equity portfolio to ISRG.

Due to the fact that Intuitive Surgical, Inc. (NASDAQ:ISRG) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedge funds that slashed their positions entirely heading into Q4. Intriguingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP sold off the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $49.4 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $28.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Intuitive Surgical, Inc. (NASDAQ:ISRG). These stocks are The TJX Companies, Inc. (NYSE:TJX), Anthem Inc (NYSE:ANTM), The Estee Lauder Companies Inc (NYSE:EL), and The Southern Company (NYSE:SO). This group of stocks’ market caps are similar to ISRG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 54 hedge funds with bullish positions and the average amount invested in these stocks was $1850 million. That figure was $964 million in ISRG’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 33 bullish hedge fund positions. Intuitive Surgical, Inc. (NASDAQ:ISRG) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ISRG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ISRG investors were disappointed as the stock returned 15.1% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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