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International Business Machines Corp. (IBM): Hedge Funds In Wait-and-See Mode

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We at Insider Monkey have gone over 873 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th. In this article, we look at what those funds think of International Business Machines Corp. (NYSE:IBM) based on that data.

International Business Machines Corp. (NYSE:IBM) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 41 hedge funds' portfolios at the end of the second quarter of 2021. Our calculations also showed that IBM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Applied Materials, Inc. (NASDAQ:AMAT), Raytheon Technologies Corp (NYSE:RTX), and The Goldman Sachs Group, Inc. (NYSE:GS) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. 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 homepage. Now let's go over the latest hedge fund action encompassing International Business Machines Corp. (NYSE:IBM).

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

At second quarter's end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IBM over the last 24 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of International Business Machines Corp. (NYSE:IBM), with a stake worth $508.4 million reported as of the end of June. Trailing Arrowstreet Capital was Citadel Investment Group, which amassed a stake valued at $475.7 million. Masters Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Masters Capital Management allocated the biggest weight to International Business Machines Corp. (NYSE:IBM), around 8.65% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, setting aside 3.51 percent of its 13F equity portfolio to IBM.

Judging by the fact that International Business Machines Corp. (NYSE:IBM) has experienced declining sentiment from hedge fund managers, we can see that there lies a certain "tier" of hedge funds that elected to cut their entire stakes in the second quarter. It's worth mentioning that Donald Sussman's Paloma Partners dropped the largest investment of all the hedgies monitored by Insider Monkey, worth about $3.5 million in stock. David Costen Haley's fund, HBK Investments, also dumped its stock, about $1.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to International Business Machines Corp. (NYSE:IBM). These stocks are Applied Materials, Inc. (NASDAQ:AMAT), Raytheon Technologies Corp (NYSE:RTX), The Goldman Sachs Group, Inc. (NYSE:GS), The Toronto-Dominion Bank (NYSE:TD), JD.Com Inc (NASDAQ:JD), American Tower Corporation (REIT) (NYSE:AMT), and Sony Group Corp (NYSE:SONY). This group of stocks' market valuations match IBM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMAT,73,4594094,-5 RTX,53,2112283,-5 GS,61,5183843,-16 TD,17,303083,-2 JD,76,10697800,1 AMT,55,4720340,-3 SONY,20,409056,-7 Average,50.7,4002928,-5.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $4003 million. That figure was $1374 million in IBM's case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand The Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. International Business Machines Corp. (NYSE:IBM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBM is 44.9. 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. 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 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately IBM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); IBM investors were disappointed as the stock returned -1.7% since the end of June (through 10/11) 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.