Were These Hedge Funds Right About Cashing Out Of Thermo Fisher Scientific Inc. (TMO)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Thermo Fisher Scientific Inc. (NYSE:TMO).

Is Thermo Fisher Scientific Inc. (NYSE:TMO) a superb stock to buy now? Prominent investors were in a bearish mood. The number of bullish hedge fund bets were trimmed by 7 lately. Thermo Fisher Scientific Inc. (NYSE:TMO) was in 73 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 80. Our calculations also showed that TMO 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 80 hedge funds in our database with TMO 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 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. Now we’re going to analyze the latest hedge fund action regarding Thermo Fisher Scientific Inc. (NYSE:TMO).

What does smart money think about Thermo Fisher Scientific Inc. (NYSE:TMO)?

At the end of the second quarter, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TMO over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andreas Halvorsen’s Viking Global has the biggest position in Thermo Fisher Scientific Inc. (NYSE:TMO), worth close to $628.4 million, comprising 2.7% of its total 13F portfolio. The second most bullish fund manager is Generation Investment Management, managed by David Blood and Al Gore, which holds a $595.9 million position; 3.4% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Ken Fisher’s Fisher Asset Management, Farallon Capital and William von Mueffling’s Cantillon Capital Management. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to Thermo Fisher Scientific Inc. (NYSE:TMO), around 13.91% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, earmarking 4.12 percent of its 13F equity portfolio to TMO.

Judging by the fact that Thermo Fisher Scientific Inc. (NYSE:TMO) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds who sold off their full holdings heading into Q3. Intriguingly, Doug Silverman and Alexander Klabin’s Senator Investment Group dumped the biggest position of all the hedgies tracked by Insider Monkey, totaling an estimated $82.2 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $22.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Thermo Fisher Scientific Inc. (NYSE:TMO) but similarly valued. We will take a look at AstraZeneca plc (NASDAQ:AZN), Amgen, Inc. (NASDAQ:AMGN), China Mobile Limited (NYSE:CHL), McDonald’s Corporation (NYSE:MCD), Accenture Plc (NYSE:ACN), Costco Wholesale Corporation (NASDAQ:COST), and Bristol Myers Squibb Company (NYSE:BMY). This group of stocks’ market caps are closest to TMO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.6 hedge funds with bullish positions and the average amount invested in these stocks was $2563 million. That figure was $4526 million in TMO’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 9 bullish hedge fund positions. Thermo Fisher Scientific Inc. (NYSE:TMO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TMO is 50.6. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on TMO as the stock returned 29.4% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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