Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Baxter International Inc. (NYSE:BAX).
Baxter International Inc. (NYSE:BAX) shareholders have witnessed a decrease in support from the world's most elite money managers of late. Our calculations also showed that bax 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.
Let's take a gander at the latest hedge fund action surrounding Baxter International Inc. (NYSE:BAX).
How have hedgies been trading Baxter International Inc. (NYSE:BAX)?
Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2018. By comparison, 48 hedge funds held shares or bullish call options in BAX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Third Point held the most valuable stake in Baxter International Inc. (NYSE:BAX), which was worth $2276.7 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $326.7 million worth of shares. Moreover, Millennium Management, Glenview Capital, and Two Sigma Advisors were also bullish on Baxter International Inc. (NYSE:BAX), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Baxter International Inc. (NYSE:BAX) has experienced a decline in interest from hedge fund managers, logic holds that there is a sect of money managers who were dropping their full holdings by the end of the third quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, worth close to $223.2 million in stock. Arthur B Cohen and Joseph Healey's fund, Healthcor Management LP, also sold off its stock, about $132.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Baxter International Inc. (NYSE:BAX). These stocks are TC Energy Corporation (NYSE:TRP), Target Corporation (NYSE:TGT), Aon plc (NYSE:AON), and Metlife Inc (NYSE:MET). This group of stocks' market valuations are closest to BAX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRP,12,250653,-3 TGT,50,1392603,10 AON,39,2337303,-1 MET,31,1200695,7 Average,33,1295314,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1295 million. That figure was $3088 million in BAX's case. Target Corporation (NYSE:TGT) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 12 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. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately BAX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BAX investors were disappointed as the stock returned -8.5% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.