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Is SWK A Good Stock To Buy According To Hedge Funds?

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Abigail Fisher
·6 min read
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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Stanley Black & Decker, Inc. (NYSE:SWK).

Is SWK a good stock to buy? Prominent investors were taking a bullish view. The number of bullish hedge fund bets advanced by 5 lately. Stanley Black & Decker, Inc. (NYSE:SWK) was in 38 hedge funds' portfolios at the end of September. The all time high for this statistic is 41. Our calculations also showed that SWK 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). There were 33 hedge funds in our database with SWK positions at the end of the second quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments
John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind let's take a glance at the latest hedge fund action encompassing Stanley Black & Decker, Inc. (NYSE:SWK).

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

At Q3's end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the second quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in SWK a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the biggest position in Stanley Black & Decker, Inc. (NYSE:SWK). Pzena Investment Management has a $246.1 million position in the stock, comprising 1.5% of its 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $76.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include James Parsons's Junto Capital Management, John W. Rogers's Ariel Investments and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Stanley Black & Decker, Inc. (NYSE:SWK), around 9.21% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 2.64 percent of its 13F equity portfolio to SWK.

As one would reasonably expect, key money managers have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, established the biggest position in Stanley Black & Decker, Inc. (NYSE:SWK). Laurion Capital Management had $15.7 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $12.8 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, Andrew Weiss's Weiss Asset Management, and Ryan Caldwell's Chiron Investment Management.

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 Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Fastenal Company (NASDAQ:FAST), McCormick & Company, Incorporated (NYSE:MKC), Archer Daniels Midland Company (NYSE:ADM), BeiGene, Ltd. (NASDAQ:BGNE), Liberty Broadband Corp (NASDAQ:LBRDA), and Align Technology, Inc. (NASDAQ:ALGN). All of these stocks' market caps are closest to SWK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMS,9,14151,3 FAST,38,700349,4 MKC,37,315538,5 ADM,26,673303,-2 BGNE,13,5585118,0 LBRDA,25,862989,3 ALGN,47,2164625,6 Average,27.9,1473725,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $1474 million. That figure was $786 million in SWK's case. Align Technology, Inc. (NASDAQ:ALGN) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Stanley Black & Decker, Inc. (NYSE:SWK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SWK is 76. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on SWK as the stock returned 12.3% since the end of Q3 (through 12/18) 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.

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