Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Stanley Black & Decker, Inc. (NYSE:SWK) changed recently.
Stanley Black & Decker, Inc. (NYSE:SWK) has experienced a decrease in enthusiasm from smart money recently. Our calculations also showed that swk isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Let's take a peek at the latest hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).
What does the smart money think about Stanley Black & Decker, Inc. (NYSE:SWK)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the second quarter of 2018. On the other hand, there were a total of 37 hedge funds with a bullish position in SWK at the beginning of this year. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in Stanley Black & Decker, Inc. (NYSE:SWK), which was worth $96.3 million at the end of the third quarter. On the second spot was Interval Partners which amassed $62.2 million worth of shares. Moreover, Pzena Investment Management, AQR Capital Management, and Interval Partners were also bullish on Stanley Black & Decker, Inc. (NYSE:SWK), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Stanley Black & Decker, Inc. (NYSE:SWK) has faced a decline in interest from the smart money, it's safe to say that there was a specific group of hedgies that decided to sell off their full holdings in the third quarter. Intriguingly, Jim Simons's Renaissance Technologies dropped the largest stake of the 700 funds tracked by Insider Monkey, worth an estimated $48.2 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also dropped its stock, about $39.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Stanley Black & Decker, Inc. (NYSE:SWK) but similarly valued. These stocks are Liberty Global plc (NASDAQ:LBTYA), NetApp Inc. (NASDAQ:NTAP), Aptiv PLC (NYSE:APTV), and Coca-Cola European Partners plc (NYSE:CCE). This group of stocks' market values match SWK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LBTYA,39,1702341,5 NTAP,27,886361,0 APTV,43,1626371,0 CCE,23,476588,1 Average,33,1172915,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.17 billion. That figure was $421 million in SWK's case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand Coca-Cola European Partners plc (NYSE:CCE) is the least popular one with only 23 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) 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. In this regard APTV might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.