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In this article we will check out the progression of hedge fund sentiment towards Honeywell International Inc. (NYSE:HON) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is HON a good stock to buy now? The smart money was getting less bullish. The number of bullish hedge fund bets were cut by 9 lately. Honeywell International Inc. (NYSE:HON) was in 41 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 and see the video for a quick look at the top 5 stocks). There were 50 hedge funds in our database with HON holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
At the moment there are several methods shareholders employ to evaluate their holdings. Some of the most innovative methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite investment managers can outpace the market by a very impressive margin (see the details here).
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to check out the recent hedge fund action regarding Honeywell International Inc. (NYSE:HON).
Do Hedge Funds Think HON Is A Good Stock To Buy Now?
At third quarter's end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 58 hedge funds with a bullish position in HON a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Diamond Hill Capital, managed by Ric Dillon, holds the number one position in Honeywell International Inc. (NYSE:HON). Diamond Hill Capital has a $197.6 million position in the stock, comprising 1.1% of its 13F portfolio. The second largest stake is held by Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $143.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism contain John Overdeck and David Siegel's Two Sigma Advisors, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group. 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 8.29% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, dishing out 3.63 percent of its 13F equity portfolio to HON.
Judging by the fact that Honeywell International Inc. (NYSE:HON) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Renaissance Technologies cut the biggest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $76.5 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also said goodbye to its stock, about $33.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 9 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). We will take a look at International Business Machines Corp. (NYSE:IBM), BHP Group (NYSE:BBL), American Tower Corporation (NYSE:AMT), Lockheed Martin Corporation (NYSE:LMT), Anheuser-Busch InBev SA/NV (NYSE:BUD), PetroChina Company Limited (NYSE:PTR), and Starbucks Corporation (NASDAQ:SBUX). This group of stocks' market valuations are similar to HON's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBM,40,639210,-6 BBL,16,830995,-6 AMT,62,4611116,1 LMT,47,1664679,-6 BUD,18,958564,1 PTR,6,60205,0 SBUX,66,3258532,12 Average,36.4,1717614,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1718 million. That figure was $971 million in HON's case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HON is 46.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on HON as the stock returned 29.3% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.