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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Baxter International Inc. (NYSE:BAX).
Baxter International Inc. (NYSE:BAX) was in 42 hedge funds' portfolios at the end of September. The all time high for this statistic is 59. BAX investors should pay attention to a decrease in hedge fund sentiment recently. There were 46 hedge funds in our database with BAX holdings at the end of June. Our calculations also showed that BAX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Larry Robbins of Glenview Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a look at the latest hedge fund action regarding Baxter International Inc. (NYSE:BAX).
Do Hedge Funds Think BAX Is A Good Stock To Buy Now?
At Q3's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BAX over the last 25 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Baxter International Inc. (NYSE:BAX) was held by Generation Investment Management, which reported holding $1667.9 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $307 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Glenview Capital. In terms of the portfolio weights assigned to each position Tri Locum Partners allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 9.98% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, setting aside 6.93 percent of its 13F equity portfolio to BAX.
Seeing as Baxter International Inc. (NYSE:BAX) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers that elected to cut their entire stakes in the third quarter. It's worth mentioning that Christopher James's Partner Fund Management said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at close to $36.9 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund cut about $11 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Baxter International Inc. (NYSE:BAX) but similarly valued. These stocks are SYSCO Corporation (NYSE:SYY), STMicroelectronics N.V. (NYSE:STM), Cintas Corporation (NASDAQ:CTAS), Marathon Petroleum Corp (NYSE:MPC), Alcon Inc. (NYSE:ALC), Motorola Solutions Inc (NYSE:MSI), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). All of these stocks' market caps resemble BAX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYY,29,2245599,-11 STM,11,49115,-2 CTAS,36,781970,15 MPC,43,2688865,-5 ALC,20,1263277,-2 MSI,34,1266185,-3 CTSH,29,2336693,-12 Average,28.9,1518815,-2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1519 million. That figure was $3486 million in BAX's case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 11 bullish hedge fund positions. Baxter International Inc. (NYSE:BAX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BAX is 70.8. 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 positive signal but 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately BAX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BAX were disappointed as the stock returned -7.3% since the end of September (through 11/30) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.