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Hedge Funds Prefer Analog Devices Over ABB Ltd (ABB)

Nina Todic

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ABB Ltd (NYSE:ABB) and compare it against similarly valued peers such as Koninklijke Philips N.V. (NYSE:PHG), UBS Group AG (NYSE:UBS), Orange S.A. (NYSE:ORAN), and Analog Devices, Inc. (NASDAQ:ADI).

ABB Ltd (NYSE:ABB) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare ABB to other stocks including Koninklijke Philips NV (NYSE:PHG), UBS Group AG (NYSE:UBS), and Orange (NYSE:ORAN) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26262" align="aligncenter" width="359"] Steven Cohen of Point72 Asset Management[/caption]

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We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the new hedge fund action surrounding ABB Ltd (NYSE:ABB).

How have hedgies been trading ABB Ltd (NYSE:ABB)?

At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ABB over the last 17 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in ABB Ltd (NYSE:ABB), which was worth $250.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $50.1 million worth of shares. 13D Management, Beddow Capital Management, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 13D Management allocated the biggest weight to ABB Ltd (NYSE:ABB), around 4.65% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, dishing out 3.62 percent of its 13F equity portfolio to ABB.

Because ABB Ltd (NYSE:ABB) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few funds that slashed their full holdings last quarter. It's worth mentioning that Israel Englander's Millennium Management sold off the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $8.1 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dumped about $0.4 million worth. These moves are intriguing to say the least, as aggregate 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 ABB Ltd (NYSE:ABB) but similarly valued. These stocks are Koninklijke Philips N.V. (NYSE:PHG), UBS Group AG (NYSE:UBS), Orange S.A. (NYSE:ORAN), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks' market valuations are closest to ABB's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHG,7,173329,-1 UBS,16,816881,2 ORAN,3,2104,1 ADI,43,2517774,-1 Average,17.25,877522,0.25 [/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 $878 million. That figure was $326 million in ABB's case. Analog Devices, Inc. (NASDAQ:ADI) is the most popular stock in this table. On the other hand Orange S.A. (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. ABB Ltd (NYSE:ABB) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ABB as the stock returned 11% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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