There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze ICU Medical, Inc. (NASDAQ:ICUI).
Hedge fund interest in ICU Medical, Inc. (NASDAQ:ICUI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Science Applications International Corporation (NYSE:SAIC), CVR Energy, Inc. (NYSE:CVI), and Skechers USA Inc (NYSE:SKX) to gather more data points.
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' 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the latest hedge fund action surrounding ICU Medical, Inc. (NASDAQ:ICUI).
Hedge fund activity in ICU Medical, Inc. (NASDAQ:ICUI)
At Q2's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in ICUI a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in ICU Medical, Inc. (NASDAQ:ICUI) was held by Partner Fund Management, which reported holding $97.4 million worth of stock at the end of March. It was followed by Millennium Management with a $73.3 million position. Other investors bullish on the company included Nitorum Capital, AQR Capital Management, and Pura Vida Investments.
Since ICU Medical, Inc. (NASDAQ:ICUI) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of money managers who were dropping their positions entirely last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dropped the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $13.9 million in stock. Jeremy Green's fund, Redmile Group, also cut its stock, about $12.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ICU Medical, Inc. (NASDAQ:ICUI) but similarly valued. We will take a look at Science Applications International Corporation (NYSE:SAIC), CVR Energy, Inc. (NYSE:CVI), Skechers USA Inc (NYSE:SKX), and Axis Capital Holdings Limited (NYSE:AXS). This group of stocks' market caps are closest to ICUI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAIC,26,430672,-2 CVI,19,3712499,-3 SKX,23,369669,-1 AXS,27,822381,-4 Average,23.75,1333805,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $1334 million. That figure was $345 million in ICUI's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand CVR Energy, Inc. (NYSE:CVI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks ICU Medical, Inc. (NASDAQ:ICUI) is even less popular than CVI. Hedge funds dodged a bullet by taking a bearish stance towards ICUI. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ICUI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ICUI investors were disappointed as the stock returned -36.6% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.