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Is HRC A Good Stock To Buy According To Hedge Funds?

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Debasis Saha
·6 min read
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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hill-Rom Holdings, Inc. (NYSE:HRC).

Is HRC a good stock to buy? Prominent investors were getting more bullish. The number of bullish hedge fund bets improved by 4 in recent months. Hill-Rom Holdings, Inc. (NYSE:HRC) was in 34 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that HRC 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 30 hedge funds in our database with HRC holdings at the end of June.

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

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT
Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

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. With all of this in mind we're going to view the recent hedge fund action encompassing Hill-Rom Holdings, Inc. (NYSE:HRC).

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

At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in HRC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HRC A Good Stock To Buy?
Is HRC A Good Stock To Buy?

The largest stake in Hill-Rom Holdings, Inc. (NYSE:HRC) was held by Select Equity Group, which reported holding $271.2 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $61 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to Hill-Rom Holdings, Inc. (NYSE:HRC), around 3.31% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, earmarking 1.52 percent of its 13F equity portfolio to HRC.

As one would reasonably expect, specific money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Hill-Rom Holdings, Inc. (NYSE:HRC). Arrowstreet Capital had $19.3 million invested in the company at the end of the quarter. Steven Boyd's Armistice Capital also made a $13.7 million investment in the stock during the quarter. The other funds with brand new HRC positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Jim Simons (founder)'s Renaissance Technologies, and Alec Litowitz and Ross Laser's Magnetar Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hill-Rom Holdings, Inc. (NYSE:HRC) but similarly valued. These stocks are Federal Realty Investment Trust (NYSE:FRT), Syneos Health, Inc. (NASDAQ:SYNH), Bausch Health Companies (NYSE:BHC), ANGI Homeservices Inc (NASDAQ:ANGI), Hanesbrands Inc. (NYSE:HBI), Emergent Biosolutions Inc (NYSE:EBS), and Lincoln Electric Holdings, Inc. (NASDAQ:LECO). This group of stocks' market caps are similar to HRC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRT,14,37400,-6 SYNH,40,406190,11 BHC,40,1603661,5 ANGI,42,348795,-6 HBI,36,771352,5 EBS,22,151540,1 LECO,24,266760,2 Average,31.1,512243,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.1 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $538 million in HRC's case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Federal Realty Investment Trust (NYSE:FRT) is the least popular one with only 14 bullish hedge fund positions. Hill-Rom Holdings, Inc. (NYSE:HRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HRC is 74.7. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on HRC as the stock returned 20.6% since the end of Q3 (through 12/18) 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.

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