"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Becton, Dickinson and Company (NYSE:BDX) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Is Becton, Dickinson and Company (NYSE:BDX) a worthy investment right now? Money managers are getting less optimistic. The number of bullish hedge fund bets shrunk by 2 in recent months. Our calculations also showed that BDX isn't among the 30 most popular stocks among hedge funds. BDX was in 35 hedge funds' portfolios at the end of March. There were 37 hedge funds in our database with BDX holdings at the end of the previous quarter.
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 go over the key hedge fund action surrounding Becton, Dickinson and Company (NYSE:BDX).
What does the smart money think about Becton, Dickinson and Company (NYSE:BDX)?
At Q1's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BDX over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Cantillon Capital Management was the largest shareholder of Becton, Dickinson and Company (NYSE:BDX), with a stake worth $260.7 million reported as of the end of March. Trailing Cantillon Capital Management was Sirios Capital Management, which amassed a stake valued at $122.2 million. Generation Investment Management, Adage Capital Management, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Becton, Dickinson and Company (NYSE:BDX) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who sold off their full holdings by the end of the third quarter. It's worth mentioning that Anand Parekh's Alyeska Investment Group dropped the biggest investment of all the hedgies tracked by Insider Monkey, worth about $63.8 million in stock, and Richard Chilton's Chilton Investment Company was right behind this move, as the fund said goodbye to about $24.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Becton, Dickinson and Company (NYSE:BDX). We will take a look at Vale SA (NYSE:VALE), Celgene Corporation (NASDAQ:CELG), Intuitive Surgical, Inc. (NASDAQ:ISRG), and The TJX Companies, Inc. (NYSE:TJX). This group of stocks' market caps are closest to BDX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VALE,22,1943292,-11 CELG,101,11077245,43 ISRG,40,1598543,-9 TJX,54,3003962,-4 Average,54.25,4405761,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.25 hedge funds with bullish positions and the average amount invested in these stocks was $4406 million. That figure was $785 million in BDX's case. Celgene Corporation (NASDAQ:CELG) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 22 bullish hedge fund positions. Becton, Dickinson and Company (NYSE:BDX) 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 BDX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BDX investors were disappointed as the stock returned -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.