In this article we will take a look at whether hedge funds think Baker Hughes Company (NYSE:BKR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Baker Hughes Company (NYSE:BKR) has seen a decrease in activity from the world's largest hedge funds in recent months. BKR was in 30 hedge funds' portfolios at the end of the first quarter of 2020. There were 37 hedge funds in our database with BKR positions at the end of the previous quarter. Our calculations also showed that BKR 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_338852" align="aligncenter" width="400"] Richard S. Pzena of Pzena Investment Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the new hedge fund action surrounding Baker Hughes Company (NYSE:BKR).
How are hedge funds trading Baker Hughes Company (NYSE:BKR)?
At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BKR over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Baker Hughes Company (NYSE:BKR), which was worth $155.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $17.2 million worth of shares. D E Shaw, Two Sigma Advisors, and Point72 Asset Management 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 AltraVue Capital allocated the biggest weight to Baker Hughes Company (NYSE:BKR), around 3.14% of its 13F portfolio. Deep Basin Capital is also relatively very bullish on the stock, dishing out 2.36 percent of its 13F equity portfolio to BKR.
Since Baker Hughes Company (NYSE:BKR) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers that slashed their positions entirely last quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dumped the biggest position of all the hedgies tracked by Insider Monkey, totaling about $26.9 million in stock. Brandon Haley's fund, Holocene Advisors, also dropped its stock, about $11.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Baker Hughes Company (NYSE:BKR) but similarly valued. We will take a look at UDR, Inc. (NYSE:UDR), SK Telecom Co., Ltd. (NYSE:SKM), Quest Diagnostics Incorporated (NYSE:DGX), and Datadog, Inc. (NASDAQ:DDOG). This group of stocks' market valuations are similar to BKR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UDR,19,249574,-2 SKM,5,117014,-1 DGX,38,383257,7 DDOG,44,860690,12 Average,26.5,402634,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $281 million in BKR's case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. Baker Hughes Company (NYSE:BKR) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on BKR as the stock returned 59.1% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.