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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Thermo Fisher Scientific Inc. (NYSE:TMO) to find out whether there were any major changes in hedge funds' views.
Is Thermo Fisher Scientific Inc. (NYSE:TMO) a good stock to buy? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund bets were trimmed by 10 recently. Thermo Fisher Scientific Inc. (NYSE:TMO) was in 79 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 89. Our calculations also showed that TMO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 89 hedge funds in our database with TMO positions at the end of the fourth quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Blood of Generation Investment Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's go over the new hedge fund action regarding Thermo Fisher Scientific Inc. (NYSE:TMO).
Do Hedge Funds Think TMO Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 79 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in TMO over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Ken Fisher's Fisher Asset Management has the most valuable position in Thermo Fisher Scientific Inc. (NYSE:TMO), worth close to $827.9 million, accounting for 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Farallon Capital, with a $527.2 million position; 2.9% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include Cliff Asness's AQR Capital Management, David Blood and Al Gore's Generation Investment Management and William von Mueffling's Cantillon Capital Management. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to Thermo Fisher Scientific Inc. (NYSE:TMO), around 9.74% of its 13F portfolio. Columbus Point is also relatively very bullish on the stock, setting aside 9.04 percent of its 13F equity portfolio to TMO.
Due to the fact that Thermo Fisher Scientific Inc. (NYSE:TMO) has faced bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of money managers who sold off their full holdings last quarter. At the top of the heap, Robert Pohly's Samlyn Capital dropped the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $60.5 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also said goodbye to its stock, about $8.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 10 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Thermo Fisher Scientific Inc. (NYSE:TMO). These stocks are Eli Lilly and Company (NYSE:LLY), Texas Instruments Incorporated (NASDAQ:TXN), BHP Group (NYSE:BHP), McDonald's Corporation (NYSE:MCD), Pinduoduo Inc. (NASDAQ:PDD), Wells Fargo & Company (NYSE:WFC), and Danaher Corporation (NYSE:DHR). This group of stocks' market caps resemble TMO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LLY,55,2522416,5 TXN,42,2532768,-14 BHP,18,873686,-2 MCD,67,3783829,5 PDD,56,6293871,2 WFC,96,7454581,-3 DHR,81,5796963,0 Average,59.3,4179731,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.3 hedge funds with bullish positions and the average amount invested in these stocks was $4180 million. That figure was $6254 million in TMO's case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 bullish hedge fund positions. Thermo Fisher Scientific Inc. (NYSE:TMO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TMO is 60.7. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and beat the market again by 3.3 percentage points. Unfortunately TMO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TMO were disappointed as the stock returned 1.9% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.