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DENTSPLY SIRONA Inc. (XRAY): Hedge Funds In Wait-and-See Mode

Abigail Fisher

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of DENTSPLY SIRONA Inc. (NASDAQ:XRAY) based on that data. XRAY is the fifth largest holding in Principal Contrarian Value Index ETF (NYSE:PVAL).

DENTSPLY SIRONA Inc. (NASDAQ:XRAY) was in 28 hedge funds' portfolios at the end of September. XRAY has experienced a decrease in hedge fund sentiment recently. There were 29 hedge funds in our database with XRAY holdings at the end of the previous quarter. Our calculations also showed that XRAY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_189672" align="aligncenter" width="450"] David Blood of Generation Investment Management[/caption]

David Blood

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to review the key hedge fund action encompassing DENTSPLY SIRONA Inc. (NASDAQ:XRAY).

What have hedge funds been doing with DENTSPLY SIRONA Inc. (NASDAQ:XRAY)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the second quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in XRAY 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.

XRAY_dec2019

Among these funds, Generation Investment Management held the most valuable stake in DENTSPLY SIRONA Inc. (NASDAQ:XRAY), which was worth $884.5 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $396.6 million worth of shares. D E Shaw, Point72 Asset Management, and AQR Capital 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 Generation Investment Management allocated the biggest weight to DENTSPLY SIRONA Inc. (NASDAQ:XRAY), around 6.24% of its portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 2.68 percent of its 13F equity portfolio to XRAY.

Due to the fact that DENTSPLY SIRONA Inc. (NASDAQ:XRAY) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that slashed their positions entirely heading into Q4. Intriguingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $33.6 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also dumped its stock, about $33.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks similar to DENTSPLY SIRONA Inc. (NASDAQ:XRAY). These stocks are BanColombia S.A. (NYSE:CIB), Roku, Inc. (NASDAQ:ROKU), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Advance Auto Parts, Inc. (NYSE:AAP). All of these stocks' market caps are closest to XRAY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIB,11,166123,1 ROKU,37,322495,4 JBHT,22,347136,2 AAP,36,1497113,-1 Average,26.5,583217,1.5 [/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 $583 million. That figure was $1629 million in XRAY's case. Roku, Inc. (NASDAQ:ROKU) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 bullish hedge fund positions. DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on XRAY, though not to the same extent, as the stock returned 6.1% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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