Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Science Applications International Corp (NYSE:SAIC).
Is SAIC a good stock to buy now? Science Applications International Corp (NYSE:SAIC) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Science Applications International Corp (NYSE:SAIC) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 35. There were 35 hedge funds in our database with SAIC positions at the end of the second quarter. Our calculations also showed that SAIC 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Bernard Horn of Polaris Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 let's take a look at the recent hedge fund action regarding Science Applications International Corp (NYSE:SAIC).
Do Hedge Funds Think SAIC Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SAIC over the last 21 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Owl Creek Asset Management was the largest shareholder of Science Applications International Corp (NYSE:SAIC), with a stake worth $39.6 million reported as of the end of September. Trailing Owl Creek Asset Management was Horizon Asset Management, which amassed a stake valued at $34.9 million. Sunriver Management, Adage Capital Management, and Polaris Capital Management 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 Sunriver Management allocated the biggest weight to Science Applications International Corp (NYSE:SAIC), around 5.55% of its 13F portfolio. Engine Capital is also relatively very bullish on the stock, designating 3.61 percent of its 13F equity portfolio to SAIC.
Due to the fact that Science Applications International Corp (NYSE:SAIC) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers who sold off their entire stakes heading into Q4. Intriguingly, Ken Griffin's Citadel Investment Group said goodbye to the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $67.5 million in stock, and Jeffrey Jacobowitz's Simcoe Capital Management was right behind this move, as the fund said goodbye to about $57.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 14 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Science Applications International Corp (NYSE:SAIC) but similarly valued. These stocks are Stag Industrial Inc (NYSE:STAG), Hutchison China MediTech Limited (NASDAQ:HCM), DXC Technology Company (NYSE:DXC), Alaska Air Group, Inc. (NYSE:ALK), Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC), Appian Corporation (NASDAQ:APPN), and Freshpet Inc (NASDAQ:FRPT). This group of stocks' market values match SAIC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STAG,19,77620,5 HCM,5,34753,-2 DXC,37,618363,-3 ALK,34,386136,5 PAC,6,94098,-1 APPN,15,587857,-3 FRPT,23,167945,2 Average,19.9,280967,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $223 million in SAIC's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 5 bullish hedge fund positions. Science Applications International Corp (NYSE:SAIC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAIC is 34. 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 SAIC as the stock returned 24.4% 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.