Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Science Applications International Corporation (NYSE:SAIC) from the perspective of those elite funds.
Science Applications International Corporation (NYSE:SAIC) shareholders have witnessed a decrease in hedge fund sentiment recently. Our calculations also showed that SAIC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the recent hedge fund action regarding Science Applications International Corporation (NYSE:SAIC).
What have hedge funds been doing with Science Applications International Corporation (NYSE:SAIC)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in SAIC a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Science Applications International Corporation (NYSE:SAIC), with a stake worth $73.8 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $73.1 million. Horizon Asset Management, Adage Capital Management, and Simcoe Capital 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 Simcoe Capital Management allocated the biggest weight to Science Applications International Corporation (NYSE:SAIC), around 6.16% of its portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 1.5 percent of its 13F equity portfolio to SAIC.
Judging by the fact that Science Applications International Corporation (NYSE:SAIC) has experienced falling interest from hedge fund managers, logic holds that there were a few hedge funds who were dropping their full holdings in the third quarter. At the top of the heap, Clint Carlson's Carlson Capital dropped the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $35.5 million in stock, and Scott Kapnick's HPS Investment Partners was right behind this move, as the fund said goodbye to about $27.3 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Science Applications International Corporation (NYSE:SAIC). These stocks are MKS Instruments, Inc. (NASDAQ:MKSI), Capri Holdings Limited (NYSE:CPRI), First Industrial Realty Trust, Inc. (NYSE:FR), and PS Business Parks Inc (NYSE:PSB). This group of stocks' market values match SAIC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MKSI,17,411513,-2 CPRI,37,920218,2 FR,16,240768,-2 PSB,17,60032,3 Average,21.75,408133,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $351 million in SAIC's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 16 bullish hedge fund positions. Science Applications International Corporation (NYSE:SAIC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SAIC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SAIC were disappointed as the stock returned -1.9% during the fourth quarter (through the end of November) 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 among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.