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Hedge Funds Have Never Been This Bullish On IDEXX Laboratories, Inc. (IDXX)

Nina Todic

Is IDEXX Laboratories, Inc. (NASDAQ:IDXX) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

IDEXX Laboratories, Inc. (NASDAQ:IDXX) was in 37 hedge funds' portfolios at the end of the second quarter of 2019. IDXX shareholders have witnessed an increase in enthusiasm from smart money recently. There were 29 hedge funds in our database with IDXX positions at the end of the previous quarter. Our calculations also showed that IDXX isn't among the 30 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

CHILTON INVESTMENT COMPANY

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. Let's view the new hedge fund action surrounding IDEXX Laboratories, Inc. (NASDAQ:IDXX).

How have hedgies been trading IDEXX Laboratories, Inc. (NASDAQ:IDXX)?

At Q2's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IDXX over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

No of Hedge Funds with IDXX Positions

Among these funds, Renaissance Technologies held the most valuable stake in IDEXX Laboratories, Inc. (NASDAQ:IDXX), which was worth $245.9 million at the end of the second quarter. On the second spot was GLG Partners which amassed $113.3 million worth of shares. Moreover, Chilton Investment Company, Marshall Wace LLP, and AQR Capital Management were also bullish on IDEXX Laboratories, Inc. (NASDAQ:IDXX), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into IDEXX Laboratories, Inc. (NASDAQ:IDXX) headfirst. Chilton Investment Company, managed by Richard Chilton, assembled the largest position in IDEXX Laboratories, Inc. (NASDAQ:IDXX). Chilton Investment Company had $69.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $23.7 million position during the quarter. The following funds were also among the new IDXX investors: Robert B. Gillam's McKinley Capital Management, Ken Griffin's Citadel Investment Group, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's check out hedge fund activity in other stocks similar to IDEXX Laboratories, Inc. (NASDAQ:IDXX). These stocks are DTE Energy Company (NYSE:DTE), Lululemon Athletica inc. (NASDAQ:LULU), Pinduoduo Inc. (NASDAQ:PDD), and TAL Education Group (NYSE:TAL). This group of stocks' market caps are similar to IDXX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DTE,28,664329,3 LULU,49,1803118,7 PDD,29,459170,-3 TAL,25,1185511,0 Average,32.75,1028032,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1028 million. That figure was $711 million in IDXX's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 25 bullish hedge fund positions. IDEXX Laboratories, Inc. (NASDAQ:IDXX) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IDXX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on IDXX were disappointed as the stock returned -1.2% 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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