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Here is What Hedge Funds Think About Honeywell International Inc. (HON)

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  • HON

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Honeywell International Inc. (NYSE:HON).

Honeywell International Inc. (NYSE:HON) has seen a decrease in enthusiasm from smart money in recent months. Honeywell International Inc. (NYSE:HON) was in 45 hedge funds' portfolios at the end of September. The all time high for this statistic is 58. Our calculations also showed that HON isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Billionaire Mario Gabelli's top 10 Stock Picks
Billionaire Mario Gabelli's top 10 Stock Picks

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind let's review the new hedge fund action regarding Honeywell International Inc. (NYSE:HON).

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

At the end of September, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in HON a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HON A Good Stock To Buy?
Is HON A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Ken Griffin's Citadel Investment Group has the largest call position in Honeywell International Inc. (NYSE:HON), worth close to $177.7 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $148.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Israel Englander's Millennium Management, D. E. Shaw's D E Shaw and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position Pittencrieff Partners - Gabalex Capital allocated the biggest weight to Honeywell International Inc. (NYSE:HON), around 6.87% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 3.24 percent of its 13F equity portfolio to HON.

Because Honeywell International Inc. (NYSE:HON) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedgies who were dropping their full holdings in the third quarter. At the top of the heap, Matthew Stadelman's Diamond Hill Capital dumped the biggest investment of all the hedgies followed by Insider Monkey, worth an estimated $236.3 million in call options, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund said goodbye to about $21.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 12 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Honeywell International Inc. (NYSE:HON) but similarly valued. These stocks are QUALCOMM, Incorporated (NASDAQ:QCOM), Citigroup Inc. (NYSE:C), Royal Bank of Canada (NYSE:RY), Lowe's Companies, Inc. (NYSE:LOW), The Unilever Group (NYSE:UL), The Charles Schwab Corporation (NYSE:SCHW), and Sony Group Corp (NYSE:SONY). All of these stocks' market caps resemble HON's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QCOM,70,3519652,-2 C,79,5587345,-8 RY,16,1103417,-2 LOW,60,5080325,-3 UL,17,876681,-2 SCHW,59,4578571,-13 SONY,19,388862,-1 Average,45.7,3019265,-4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.7 hedge funds with bullish positions and the average amount invested in these stocks was $3019 million. That figure was $928 million in HON's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 16 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HON is 39.3. 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 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately HON wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HON investors were disappointed as the stock returned -4.3% since the end of September (through 11/30) 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.