How do we determine whether Syneos Health, Inc. (NASDAQ:SYNH) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Syneos Health, Inc. (NASDAQ:SYNH) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds' portfolios at the end of the third quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Zynga Inc (NASDAQ:ZNGA), Jabil Inc. (NYSE:JBL), and BWX Technologies Inc (NYSE:BWXT) to gather more data points. Our calculations also showed that SYNH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_735677" align="aligncenter" width="1680"] Sander Gerber of Hudson Bay Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the recent hedge fund action regarding Syneos Health, Inc. (NASDAQ:SYNH).
Hedge fund activity in Syneos Health, Inc. (NASDAQ:SYNH)
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in SYNH a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Cardinal Capital was the largest shareholder of Syneos Health, Inc. (NASDAQ:SYNH), with a stake worth $43 million reported as of the end of September. Trailing Cardinal Capital was Millennium Management, which amassed a stake valued at $34.7 million. Viking Global, Hawk Ridge Management, and Hudson Bay 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 Hawk Ridge Management allocated the biggest weight to Syneos Health, Inc. (NASDAQ:SYNH), around 4.07% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, designating 1.42 percent of its 13F equity portfolio to SYNH.
Because Syneos Health, Inc. (NASDAQ:SYNH) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there were a few fund managers that slashed their positions entirely heading into Q4. Intriguingly, Steve Cohen's Point72 Asset Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, comprising close to $18.8 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also said goodbye to its stock, about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Syneos Health, Inc. (NASDAQ:SYNH) but similarly valued. We will take a look at Zynga Inc (NASDAQ:ZNGA), Jabil Inc. (NYSE:JBL), BWX Technologies Inc (NYSE:BWXT), and Ingredion Inc (NYSE:INGR). This group of stocks' market valuations resemble SYNH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNGA,39,1138358,-9 JBL,30,437935,4 BWXT,21,58972,2 INGR,27,343195,6 Average,29.25,494615,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $495 million. That figure was $212 million in SYNH's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand BWX Technologies Inc (NYSE:BWXT) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Syneos Health, Inc. (NASDAQ:SYNH) is even less popular than BWXT. Hedge funds dodged a bullet by taking a bearish stance towards SYNH. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SYNH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SYNH investors were disappointed as the stock returned 3.2% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.