Were These Hedge Funds Right About Buying Agilent Technologies Inc. (A)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Agilent Technologies Inc. (NYSE:A) 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 Agilent Technologies Inc. (NYSE:A) a buy, sell, or hold? Prominent investors were becoming more confident. The number of long hedge fund positions improved by 3 lately. Agilent Technologies Inc. (NYSE:A) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 52. Our calculations also showed that A 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 35 hedge funds in our database with A positions at the end of the first 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 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.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging 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. Keeping this in mind we’re going to review the fresh hedge fund action surrounding Agilent Technologies Inc. (NYSE:A).

What have hedge funds been doing with Agilent Technologies Inc. (NYSE:A)?

At second quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 39 hedge funds held shares or bullish call options in A a year ago. 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, Pershing Square was the largest shareholder of Agilent Technologies Inc. (NYSE:A), with a stake worth $1115.8 million reported as of the end of June. Trailing Pershing Square was Cantillon Capital Management, which amassed a stake valued at $367.4 million. D E Shaw, Impax Asset Management, and BlueSpruce Investments 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 Pershing Square allocated the biggest weight to Agilent Technologies Inc. (NYSE:A), around 14.39% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, designating 5.44 percent of its 13F equity portfolio to A.

Now, key money managers have jumped into Agilent Technologies Inc. (NYSE:A) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in Agilent Technologies Inc. (NYSE:A). Point72 Asset Management had $29.8 million invested in the company at the end of the quarter. Thyra Zerhusen’s Fairpointe Capital also made a $21.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, David Costen Haley’s HBK Investments, and Greg Eisner’s Engineers Gate Manager.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Agilent Technologies Inc. (NYSE:A) but similarly valued. These stocks are Paychex, Inc. (NASDAQ:PAYX), IQVIA Holdings, Inc. (NYSE:IQV), The Hershey Company (NYSE:HSY), CRH PLC (NYSE:CRH), ING Groep N.V. (NYSE:ING), TE Connectivity Ltd. (NYSE:TEL), and American International Group Inc (NYSE:AIG). This group of stocks’ market caps are similar to A’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.3 hedge funds with bullish positions and the average amount invested in these stocks was $1346 million. That figure was $2815 million in A’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. Agilent Technologies Inc. (NYSE:A) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for A is 56.2. 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. Hedge funds were also right about betting on A as the stock returned 15.7% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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