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Henry Schein, Inc. (HSIC) Fell Out Of Favor With Hedge Funds

Reymerlyn Martin
·6 mins read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Henry Schein, Inc. (NASDAQ:HSIC) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Henry Schein, Inc. (NASDAQ:HSIC) was in 33 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. HSIC shareholders have witnessed a decrease in support from the world's most elite money managers of late. There were 35 hedge funds in our database with HSIC positions at the end of the first quarter. Our calculations also showed that HSIC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are seen as slow, outdated financial tools of the past. While there are more than 8000 funds in operation at the moment, Our researchers choose to focus on the crème de la crème of this club, around 850 funds. These hedge fund managers administer the majority of the hedge fund industry's total capital, and by keeping track of their finest equity investments, Insider Monkey has revealed many investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Blood
David Blood

David Blood of Generation Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a gander at the fresh hedge fund action regarding Henry Schein, Inc. (NASDAQ:HSIC).

What does smart money think about Henry Schein, Inc. (NASDAQ:HSIC)?

Heading into the third quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HSIC over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Generation Investment Management held the most valuable stake in Henry Schein, Inc. (NASDAQ:HSIC), which was worth $781.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $88 million worth of shares. D E Shaw, Renaissance Technologies, and Citadel Investment Group 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 Generation Investment Management allocated the biggest weight to Henry Schein, Inc. (NASDAQ:HSIC), around 4.51% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 1.06 percent of its 13F equity portfolio to HSIC.

Judging by the fact that Henry Schein, Inc. (NASDAQ:HSIC) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of money managers that elected to cut their positions entirely heading into Q3. At the top of the heap, Robert Joseph Caruso's Select Equity Group sold off the largest position of all the hedgies followed by Insider Monkey, comprising close to $119.5 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund said goodbye to about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to Henry Schein, Inc. (NASDAQ:HSIC). These stocks are Ciena Corporation (NYSE:CIEN), Chegg Inc (NYSE:CHGG), Mylan N.V. (NASDAQ:MYL), Gold Fields Limited (NYSE:GFI), Caesars Entertainment Corp (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), and Carnival Corporation & plc (NYSE:CUK). This group of stocks' market caps resemble HSIC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIEN,32,369502,1 CHGG,45,1004897,11 MYL,46,1646058,-3 GFI,15,548446,-7 CZR,50,3911673,3 MGM,32,1006863,-18 CUK,14,72014,5 Average,33.4,1222779,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1223 million. That figure was $1057 million in HSIC's case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand Carnival Corporation & plc (NYSE:CUK) is the least popular one with only 14 bullish hedge fund positions. Henry Schein, Inc. (NASDAQ:HSIC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HSIC is 56.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on HSIC, though not to the same extent, as the stock returned 13.8% during the first two months of Q3 and outperformed the market.

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Disclosure: None. This article was originally published at Insider Monkey.

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