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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Cooper Companies, Inc. (NYSE:COO).
Is COO a good stock to buy? The best stock pickers were in a pessimistic mood. The number of bullish hedge fund bets decreased by 4 in recent months. The Cooper Companies, Inc. (NYSE:COO) was in 30 hedge funds' portfolios at the end of September. The all time high for this statistic is 34. Our calculations also showed that COO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 34 hedge funds in our database with COO holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most investors, hedge funds are perceived as unimportant, outdated investment vehicles of the past. While there are greater than 8000 funds in operation today, Our experts look at the aristocrats of this club, around 850 funds. Most estimates calculate that this group of people handle the lion's share of all hedge funds' total capital, and by watching their unrivaled stock picks, Insider Monkey has unearthed numerous investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Arthur B Cohen and Joseph Healey of Healthcor Management LP
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we're going to take a look at the fresh hedge fund action encompassing The Cooper Companies, Inc. (NYSE:COO).
Do Hedge Funds Think COO Is A Good Stock To Buy Now?
At third quarter's end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in COO over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Cooper Companies, Inc. (NYSE:COO) was held by Generation Investment Management, which reported holding $759 million worth of stock at the end of September. It was followed by Viking Global with a $118.6 million position. Other investors bullish on the company included Healthcor Management LP, Citadel Investment Group, and Pura Vida Investments. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to The Cooper Companies, Inc. (NYSE:COO), around 4.03% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 3.26 percent of its 13F equity portfolio to COO.
Because The Cooper Companies, Inc. (NYSE:COO) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedgies who were dropping their positions entirely by the end of the third quarter. It's worth mentioning that Greg Poole's Echo Street Capital Management dropped the biggest position of all the hedgies monitored by Insider Monkey, worth close to $22.9 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also dumped its stock, about $7.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Cooper Companies, Inc. (NYSE:COO) but similarly valued. These stocks are Vulcan Materials Company (NYSE:VMC), Palantir Technologies Inc. (NYSE:PLTR), Rollins, Inc. (NYSE:ROL), Discover Financial Services (NYSE:DFS), Valero Energy Corporation (NYSE:VLO), Coca-Cola European Partners plc (NYSE:CCEP), and CMS Energy Corporation (NYSE:CMS). All of these stocks' market caps resemble COO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VMC,42,1331465,-9 PLTR,31,643387,31 ROL,29,673189,0 DFS,47,1120616,3 VLO,38,237285,-1 CCEP,23,464184,-4 CMS,29,370207,-1 Average,34.1,691476,2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $691 million. That figure was $1218 million in COO's case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCEP) is the least popular one with only 23 bullish hedge fund positions. The Cooper Companies, Inc. (NYSE:COO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COO is 42.1. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately COO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COO investors were disappointed as the stock returned 3.7% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.