After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 28. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Stanley Black & Decker, Inc. (NYSE:SWK).
Stanley Black & Decker, Inc. (NYSE:SWK) was in 27 hedge funds' portfolios at the end of June. SWK investors should pay attention to a decrease in hedge fund sentiment lately. There were 31 hedge funds in our database with SWK positions at the end of the previous quarter. Our calculations also showed that SWK isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the key hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).
Hedge fund activity in Stanley Black & Decker, Inc. (NYSE:SWK)
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SWK over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Stanley Black & Decker, Inc. (NYSE:SWK) was held by Pzena Investment Management, which reported holding $347.8 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $312.9 million position. Other investors bullish on the company included Holocene Advisors, Ariel Investments, and D E Shaw.
Since Stanley Black & Decker, Inc. (NYSE:SWK) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedgies that decided to sell off their positions entirely last quarter. At the top of the heap, Zach Schreiber's Point State Capital dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling about $67.9 million in stock. Alexander Mitchell's fund, Scopus Asset Management, also sold off its stock, about $25.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Stanley Black & Decker, Inc. (NYSE:SWK). These stocks are Hormel Foods Corporation (NYSE:HRL), Edison International (NYSE:EIX), Realty Income Corporation (NYSE:O), and Rogers Communications Inc. (NYSE:RCI). This group of stocks' market values match SWK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HRL,16,155140,1 EIX,33,1771587,6 O,22,235043,7 RCI,14,364485,-1 Average,21.25,631564,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $632 million. That figure was $1068 million in SWK's case. Edison International (NYSE:EIX) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 14 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SWK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SWK were disappointed as the stock returned 0.4% during the third quarter 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.