Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Baxter International Inc. (NYSE:BAX) changed recently.
Is Baxter International Inc. (NYSE:BAX) the right investment to pursue these days? Prominent investors are getting more bullish. The number of bullish hedge fund positions increased by 2 lately. Our calculations also showed that BAX isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the recent hedge fund action regarding Baxter International Inc. (NYSE:BAX).
How have hedgies been trading Baxter International Inc. (NYSE:BAX)?
At Q3's end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BAX over the last 13 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Third Point was the largest shareholder of Baxter International Inc. (NYSE:BAX), with a stake worth $2775.2 million reported as of the end of September. Trailing Third Point was AQR Capital Management, which amassed a stake valued at $502.1 million. Suvretta Capital Management, Two Sigma Advisors, and Maverick Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names have jumped into Baxter International Inc. (NYSE:BAX) headfirst. Maverick Capital, managed by Lee Ainslie, assembled the most outsized position in Baxter International Inc. (NYSE:BAX). Maverick Capital had $64.2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $37 million investment in the stock during the quarter. The other funds with brand new BAX positions are Matthew Tewksbury's Stevens Capital Management, George Hall's Clinton Group, and Joel Greenblatt's Gotham Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Baxter International Inc. (NYSE:BAX) but similarly valued. These stocks are Telefonica S.A. (NYSE:TEF), HP Inc. (NYSE:HPQ), Square, Inc. (NYSE:SQ), and China Telecom Corporation Limited (NYSE:CHA). All of these stocks' market caps are closest to BAX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEF,5,5626,-2 HPQ,35,1086333,1 SQ,23,1366844,-6 CHA,6,22377,1 Average,17.25,620295,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $4.39 billion in BAX's case. HP Inc. (NYSE:HPQ) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Baxter International Inc. (NYSE:BAX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.