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Were Hedge Funds Right About Bio-Rad Laboratories, Inc. (BIO)?

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Bio-Rad Laboratories, Inc. (NYSE:BIO)? The smart money sentiment can provide an answer to this question.

Bio-Rad Laboratories, Inc. (NYSE:BIO) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds' portfolios at the end of the fourth 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 Tractor Supply Company (NASDAQ:TSCO), StoneCo Ltd. (NASDAQ:STNE), and Elanco Animal Health Incorporated (NYSE:ELAN) to gather more data points. Our calculations also showed that BIO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

At the moment there are tons of formulas stock traders put to use to grade publicly traded companies. A couple of the less utilized formulas are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outperform their index-focused peers by a solid amount (see the details here).

[caption id="attachment_373490" align="aligncenter" width="399"] Wall Street Bull[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's review the key hedge fund action encompassing Bio-Rad Laboratories, Inc. (NYSE:BIO).

Hedge fund activity in Bio-Rad Laboratories, Inc. (NYSE:BIO)

Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BIO over the last 18 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.

Among these funds, AQR Capital Management held the most valuable stake in Bio-Rad Laboratories, Inc. (NYSE:BIO), which was worth $118.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $99.5 million worth of shares. Ariel Investments, Fisher Asset Management, and Intermede Investment Partners 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 Tower House Partners allocated the biggest weight to Bio-Rad Laboratories, Inc. (NYSE:BIO), around 43.05% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, dishing out 8.38 percent of its 13F equity portfolio to BIO.

Because Bio-Rad Laboratories, Inc. (NYSE:BIO) has witnessed a decline in interest from the smart money, we can see that there lies a certain "tier" of money managers that elected to cut their entire stakes last quarter. It's worth mentioning that Michael Gelband's ExodusPoint Capital sold off the largest investment of the 750 funds tracked by Insider Monkey, worth about $11.8 million in stock. Sander Gerber's fund, Hudson Bay Capital Management, also dumped its stock, about $11.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Bio-Rad Laboratories, Inc. (NYSE:BIO). We will take a look at Tractor Supply Company (NASDAQ:TSCO), StoneCo Ltd. (NASDAQ:STNE), Elanco Animal Health Incorporated (NYSE:ELAN), and LKQ Corporation (NASDAQ:LKQ). This group of stocks' market caps match BIO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSCO,44,696994,3 STNE,29,1474730,1 ELAN,23,620585,-4 LKQ,52,1559414,9 Average,37,1087931,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1088 million. That figure was $1031 million in BIO's case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 23 bullish hedge fund positions. Bio-Rad Laboratories, Inc. (NYSE:BIO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on BIO as the stock returned 16.7% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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