"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Medtronic plc (NYSE:MDT) and see how it was affected.
Medtronic plc (NYSE:MDT) was in 50 hedge funds' portfolios at the end of September. MDT investors should be aware of an increase in enthusiasm from smart money lately. There were 49 hedge funds in our database with MDT holdings at the end of the previous quarter. Our calculations also showed that MDT 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.
To the average investor there are many tools shareholders have at their disposal to value publicly traded companies. Two of the less known tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the top investment managers can outpace the broader indices by a healthy margin (see the details here).
[caption id="attachment_758429" align="aligncenter" width="450"] Ric Dillon of Diamond Hill Capital[/caption]
Let's review the key hedge fund action surrounding Medtronic plc (NYSE:MDT).
How have hedgies been trading Medtronic plc (NYSE:MDT)?
Heading into the fourth quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the second quarter of 2019. By comparison, 53 hedge funds held shares or bullish call options in MDT a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Diamond Hill Capital was the largest shareholder of Medtronic plc (NYSE:MDT), with a stake worth $408.5 million reported as of the end of September. Trailing Diamond Hill Capital was AQR Capital Management, which amassed a stake valued at $401.8 million. D E Shaw, Adage Capital Management, and Renaissance Technologies 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 Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 11.32% of its portfolio. Sio Capital is also relatively very bullish on the stock, designating 2.82 percent of its 13F equity portfolio to MDT.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Suvretta Capital Management, managed by Aaron Cowen, assembled the largest position in Medtronic plc (NYSE:MDT). Suvretta Capital Management had $94.5 million invested in the company at the end of the quarter. Mike Masters's Masters Capital Management also made a $43.4 million investment in the stock during the quarter. The other funds with new positions in the stock are David E. Shaw's D E Shaw, Andrew Sandler's Sandler Capital Management, and Perella Weinberg Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Medtronic plc (NYSE:MDT) but similarly valued. We will take a look at SAP SE (NYSE:SAP), TOTAL S.A. (NYSE:TOT), Adobe Inc. (NASDAQ:ADBE), and salesforce.com, inc. (NYSE:CRM). This group of stocks' market values are closest to MDT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAP,18,1578895,1 TOT,17,1094583,4 ADBE,92,8325284,0 CRM,102,9433280,20 Average,57.25,5108011,6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.25 hedge funds with bullish positions and the average amount invested in these stocks was $5108 million. That figure was $2120 million in MDT's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 17 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MDT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MDT investors were disappointed as the stock returned 2% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.