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Baxter International Inc. (BAX): Hedge Funds Are Snapping Up

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  • BAX

Is Baxter International Inc. (NYSE:BAX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Baxter International Inc. (NYSE:BAX) shareholders have witnessed an increase in hedge fund sentiment of late. Baxter International Inc. (NYSE:BAX) was in 46 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 59. There were 40 hedge funds in our database with BAX positions at the end of the first quarter. Our calculations also showed that BAX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David Blood
David Blood

David Blood of Generation Investment Management

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 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. 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 homepage. Keeping this in mind we're going to take a peek at the key hedge fund action encompassing Baxter International Inc. (NYSE:BAX).

Do Hedge Funds Think BAX Is A Good Stock To Buy Now?

At Q2's end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in BAX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Generation Investment Management was the largest shareholder of Baxter International Inc. (NYSE:BAX), with a stake worth $1691 million reported as of the end of June. Trailing Generation Investment Management was Two Sigma Advisors, which amassed a stake valued at $203.8 million. Arrowstreet Capital, D E Shaw, and Glenview Capital 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 Generation Investment Management allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 7.01% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, earmarking 2.85 percent of its 13F equity portfolio to BAX.

Consequently, key hedge funds were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, created the biggest position in Baxter International Inc. (NYSE:BAX). Citadel Investment Group had $30.4 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $5.2 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Qing Li's Sciencast Management, and Donald Sussman's Paloma Partners.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Baxter International Inc. (NYSE:BAX) but similarly valued. These stocks are Prudential Financial Inc (NYSE:PRU), Las Vegas Sands Corp. (NYSE:LVS), PPG Industries, Inc. (NYSE:PPG), Cintas Corporation (NASDAQ:CTAS), Sempra (NYSE:SRE), CRH PLC (NYSE:CRH), and SYSCO Corporation (NYSE:SYY). This group of stocks' market caps match BAX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRU,28,494481,-9 LVS,48,1758510,-14 PPG,26,233709,1 CTAS,21,539216,-11 SRE,28,343994,1 CRH,9,90599,0 SYY,40,2600524,-2 Average,28.6,865862,-4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $866 million. That figure was $2911 million in BAX's case. Las Vegas Sands Corp. (NYSE:LVS) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 9 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 80.8. 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 22.9% in 2021 through October 1st 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 1.3% since the end of June (through 10/1) 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.