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Did The Smart Money Get Zimmer Biomet Holdings Inc (ZBH) Right?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th. Hedge funds' consensus stock picks performed spectacularly over the last 3 years, but 2022 hasn't been kind to hedge funds. In this article we look at how hedge funds traded Zimmer Biomet Holdings Inc (NYSE:ZBH) and determine whether the smart money was really smart about this stock.

Zimmer Biomet Holdings Inc (NYSE:ZBH) investors should pay attention to a decrease in activity from the world's largest hedge funds recently. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 47 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 64. Our calculations also showed that ZBH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. Keeping this in mind we're going to take a look at the latest hedge fund action regarding Zimmer Biomet Holdings Inc (NYSE:ZBH).

Dan Loeb THIRD POINT
Dan Loeb THIRD POINT

Dan Loeb of Third Point

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

Heading into the fourth quarter of 2021, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. By comparison, 55 hedge funds held shares or bullish call options in ZBH a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Viking Global, managed by Andreas Halvorsen, holds the biggest position in Zimmer Biomet Holdings Inc (NYSE:ZBH). Viking Global has a $499 million position in the stock, comprising 1.4% of its 13F portfolio. On Viking Global's heels is Dan Loeb of Third Point, with a $131.7 million position; 0.7% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism consist of Stephen DuBois's Camber Capital Management, D. E. Shaw's D E Shaw and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 4.44% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, earmarking 3.27 percent of its 13F equity portfolio to ZBH.

Because Zimmer Biomet Holdings Inc (NYSE:ZBH) has experienced falling interest from hedge fund managers, it's safe to say that there exists a select few hedgies that decided to sell off their full holdings heading into Q4. It's worth mentioning that Brian Ashford-Russell and Tim Woolley's Polar Capital dropped the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $61.2 million in stock, and James E. Flynn's Deerfield Management was right behind this move, as the fund dropped about $54.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let's go over hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). We will take a look at Chunghwa Telecom Co., Ltd (NYSE:CHT), Southwest Airlines Co. (NYSE:LUV), XPeng Inc. (NYSE:XPEV), Equity Residential (NYSE:EQR), Keysight Technologies Inc (NYSE:KEYS), Sun Life Financial Inc. (NYSE:SLF), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks' market values are similar to ZBH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHT,6,156827,-1 LUV,39,729508,-10 XPEV,25,657189,6 EQR,32,558805,1 KEYS,30,675201,-2 SLF,8,81688,-3 DHI,51,2184785,6 Average,27.3,720572,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $721 million. That figure was $1665 million in ZBH's case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 6 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZBH is 71.6. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, ZBH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned -15.8% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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