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Hedge Funds Are Selling Baxter International Inc. (BAX)

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We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Baxter International Inc. (NYSE:BAX) based on that data.

Baxter International Inc. (NYSE:BAX) has experienced a decrease in hedge fund sentiment of late. Baxter International Inc. (NYSE:BAX) was in 40 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 59. There were 42 hedge funds in our database with BAX positions at the end of the fourth quarter. Our calculations also showed that BAX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a look at the key hedge fund action surrounding Baxter International Inc. (NYSE:BAX).

Do Hedge Funds Think BAX Is A Good Stock To Buy Now?

At the end of March, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 50 hedge funds held shares or bullish call options in BAX a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is BAX A Good Stock To Buy?
Is BAX A Good Stock To Buy?

Among these funds, Generation Investment Management held the most valuable stake in Baxter International Inc. (NYSE:BAX), which was worth $1769.7 million at the end of the fourth quarter. On the second spot was D1 Capital Partners which amassed $273.7 million worth of shares. Arrowstreet Capital, Two Sigma Advisors, and D E Shaw 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 Generation Investment Management allocated the biggest weight to Baxter International Inc. (NYSE:BAX), around 7.42% of its 13F portfolio. Tri Locum Partners is also relatively very bullish on the stock, designating 6.57 percent of its 13F equity portfolio to BAX.

Due to the fact that Baxter International Inc. (NYSE:BAX) has experienced a decline in interest from the smart money, logic holds that there exists a select few money managers who sold off their full holdings last quarter. At the top of the heap, McKinley Capital Management sold off the largest stake of the "upper crust" of funds watched by Insider Monkey, worth about $6.2 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $4.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.

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 Public Storage (NYSE:PSA), Johnson Controls International plc (NYSE:JCI), Align Technology, Inc. (NASDAQ:ALGN), Ross Stores, Inc. (NASDAQ:ROST), Exelon Corporation (NYSE:EXC), TE Connectivity Ltd. (NYSE:TEL), and Biogen Inc. (NASDAQ:BIIB). All of these stocks' market caps resemble BAX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSA,26,929024,-5 JCI,41,1023861,7 ALGN,49,2831496,-1 ROST,48,976585,-9 EXC,44,1134135,14 TEL,39,2343917,0 BIIB,63,2481373,0 Average,44.3,1674342,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.3 hedge funds with bullish positions and the average amount invested in these stocks was $1674 million. That figure was $3358 million in BAX's case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Public Storage (NYSE:PSA) is the least popular one with only 26 bullish hedge fund positions. Baxter International Inc. (NYSE:BAX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BAX is 42.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately BAX wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BAX investors were disappointed as the stock returned -2.2% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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