What Smart Money Thinks about Intuitive Surgical, Inc. (ISRG)?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Intuitive Surgical, Inc. (NASDAQ:ISRG), and what that likely means for the prospects of the company and its stock.

Is Intuitive Surgical, Inc. (NASDAQ:ISRG) a good investment now? Money managers are buying, judging by the fact that the number of bullish hedge fund bets went up by two during the third quarter. In this way, at the end of September, 33 funds tracked by Insider Monkey held shares of Intuitive Surgical. At the end of this article we will also compare ISRG to other stocks including NVIDIA Corporation (NASDAQ:NVDA), Spectra Energy Corp. (NYSE:SE), and Southwest Airlines Co. (NYSE:LUV) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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With all of this in mind, let’s analyze the latest action regarding Intuitive Surgical, Inc. (NASDAQ:ISRG).

How are hedge funds trading Intuitive Surgical, Inc. (NASDAQ:ISRG)?

As stated earlier a total of 33 funds tracked by Insider Monkey were bullish on ISRG heading into the fourth quarter, up by 6% from the end of June. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Principal Global Investors’ Columbus Circle Investors has the largest position in Intuitive Surgical, Inc. (NASDAQ:ISRG), worth close to $191.2 million, accounting for 2.1% of its total 13F portfolio. Coming in second is Israel Englander’s Millennium Management, with a $187.1 million position; 0.3% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism comprise Samuel Isaly’s OrbiMed Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and D. E. Shaw’s D E Shaw.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Hudson Bay Capital Management, managed by Sander Gerber, initiated the most outsized call position in Intuitive Surgical, Inc. (NASDAQ:ISRG). Hudson Bay Capital Management had $67.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also added a $63.4 million position during the quarter. The other funds with brand new ISRG positions are Andrew Sandler’s Sandler Capital Management and Ray Dalio’s Bridgewater Associates.

Let’s also examine hedge fund activity in other stocks similar to Intuitive Surgical, Inc. (NASDAQ:ISRG). These stocks are NVIDIA Corporation (NASDAQ:NVDA), Spectra Energy Corp. (NYSE:SE), Southwest Airlines Co. (NYSE:LUV), and Baxter International Inc. (NYSE:BAX). All of these stocks’ market caps match ISRG’s market cap.

As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $2246 million. That figure was $1266 million in ISRG’s case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table, while Spectra Energy Corp. (NYSE:SE) is the least popular one with only 25 funds reporting long 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. In this regard Southwest Airlines Co. (NYSE:LUV) might be a better candidate to consider a long position.