Is Varian Medical Systems, Inc. (NYSE:VAR) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Varian Medical Systems, Inc. (NYSE:VAR) was in 30 hedge funds' portfolios at the end of December. VAR has experienced an increase in enthusiasm from smart money lately. There were 19 hedge funds in our database with VAR positions at the end of September. Overall hedge fund sentiment towards VAR is at its all time high. This is usually a bullish indicator. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and MSCI which returned 29%. Both stocks outperformed the S&P 500 Index by 14 and 16 percentage points respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, MTB and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.
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 32 percentage points since May 2014 through March 12, 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.
Let's check out the fresh hedge fund action surrounding Varian Medical Systems, Inc. (NYSE:VAR).
What have hedge funds been doing with Varian Medical Systems, Inc. (NYSE:VAR)?
Heading into the first quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 58% from the second quarter of 2018. On the other hand, there were a total of 19 hedge funds with a bullish position in VAR a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Varian Medical Systems, Inc. (NYSE:VAR) was held by Renaissance Technologies, which reported holding $136 million worth of stock at the end of September. It was followed by Millennium Management with a $132.1 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Two Sigma Advisors.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Varian Medical Systems, Inc. (NYSE:VAR) headfirst. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Varian Medical Systems, Inc. (NYSE:VAR). Alyeska Investment Group had $44.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $28.8 million position during the quarter. The other funds with brand new VAR positions are Phill Gross and Robert Atchinson's Adage Capital Management, Jeffrey Talpins's Element Capital Management, and Brad Farber's Atika Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Varian Medical Systems, Inc. (NYSE:VAR) but similarly valued. These stocks are Live Nation Entertainment, Inc. (NYSE:LYV), Domino's Pizza, Inc. (NYSE:DPZ), HEICO Corporation (NYSE:HEI), and Hasbro, Inc. (NASDAQ:HAS). All of these stocks' market caps match VAR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYV,37,862439,-1 DPZ,32,1859638,4 HEI,31,731968,1 HAS,19,254690,-1 Average,29.75,927184,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $927 million. That figure was $804 million in VAR's case. Live Nation Entertainment, Inc. (NYSE:LYV) is the most popular stock in this table. On the other hand Hasbro, Inc. (NASDAQ:HAS) is the least popular one with only 19 bullish hedge fund positions. Varian Medical Systems, Inc. (NYSE:VAR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on VAR as the stock returned 20.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.