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Is Stanley Black & Decker, Inc. (SWK) A Good Investment According To Hedge Funds?

Asma UL Husna

Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Stanley Black & Decker, Inc. (NYSE:SWK).

Stanley Black & Decker, Inc. (NYSE:SWK) has experienced an increase in activity from the world's largest hedge funds lately. 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 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 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.

Dmitry Balyasny

We're going to take a look at the latest hedge fund action regarding Stanley Black & Decker, Inc. (NYSE:SWK).

How have hedgies been trading Stanley Black & Decker, Inc. (NYSE:SWK)?

At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SWK over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SWK_mar2019

Among these funds, Citadel Investment Group held the most valuable stake in Stanley Black & Decker, Inc. (NYSE:SWK), which was worth $249 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $148 million worth of shares. Moreover, Ariel Investments, Theleme Partners, and Interval Partners were also bullish on Stanley Black & Decker, Inc. (NYSE:SWK), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, some big names have been driving this bullishness. Theleme Partners, managed by Patrick Degorce, assembled the biggest position in Stanley Black & Decker, Inc. (NYSE:SWK). Theleme Partners had $74.8 million invested in the company at the end of the quarter. Wallace Weitz's Wallace R. Weitz & Co. also initiated a $14.2 million position during the quarter. The other funds with brand new SWK positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Steve Cohen's Point72 Asset Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now take a look at hedge fund activity in other stocks similar to Stanley Black & Decker, Inc. (NYSE:SWK). These stocks are Verisk Analytics, Inc. (NASDAQ:VRSK), TransDigm Group Incorporated (NYSE:TDG), Verisign, Inc. (NASDAQ:VRSN), and Palo Alto Networks Inc (NYSE:PANW). This group of stocks' market valuations are similar to SWK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRSK,30,659725,7 TDG,47,4062096,-1 VRSN,30,4391236,1 PANW,46,2204328,0 Average,38.25,2829346,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $2829 million. That figure was $822 million in SWK's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Verisk Analytics, Inc. (NASDAQ:VRSK) is the least popular one with only 30 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. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately SWK wasn't in this group. Hedge funds that bet on SWK were disappointed as the stock returned 10.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

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