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Were These Hedge Funds Right About Loading Up On Steris Plc (STE)?

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In this article you are going to find out whether hedge funds think Steris Plc (NYSE:STE) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Steris Plc (NYSE:STE) was in 40 hedge funds' portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. STE has seen an increase in hedge fund sentiment in recent months. There were 35 hedge funds in our database with STE holdings at the end of March. Our calculations also showed that STE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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

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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT
Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's analyze the key hedge fund action regarding Steris Plc (NYSE:STE).

How are hedge funds trading Steris Plc (NYSE:STE)?

Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STE over the last 20 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Select Equity Group, managed by Robert Joseph Caruso, holds the biggest position in Steris Plc (NYSE:STE). Select Equity Group has a $194 million position in the stock, comprising 1.1% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $102.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Greg Poole's Echo Street Capital Management, Renaissance Technologies and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Alight Capital allocated the biggest weight to Steris Plc (NYSE:STE), around 3.39% of its 13F portfolio. Precept Capital Management is also relatively very bullish on the stock, earmarking 2.93 percent of its 13F equity portfolio to STE.

Now, specific money managers were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in Steris Plc (NYSE:STE). Balyasny Asset Management had $4.6 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom's Sectoral Asset Management also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Ran Pang's Quantamental Technologies, and Renee Yao's Neo Ivy Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Steris Plc (NYSE:STE) but similarly valued. These stocks are EXACT Sciences Corporation (NASDAQ:EXAS), Pinterest, Inc. (NYSE:PINS), Avangrid, Inc. (NYSE:AGR), Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), and Galapagos NV (NASDAQ:GLPG). All of these stocks' market caps are similar to STE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXAS,43,993223,9 PINS,53,1067483,15 AGR,18,132976,0 BURL,38,1475273,-2 SYF,46,1563925,9 FMC,42,548601,3 GLPG,13,151392,-2 Average,36.1,847553,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $848 million. That figure was $545 million in STE's case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Steris Plc (NYSE:STE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for STE is 73.8. 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 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on STE as the stock returned 15.8% since the end of Q2 (through 10/30) 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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