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Were Hedge Funds Right About Medtronic plc (MDT)?

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In this article we are going to use hedge fund sentiment as a tool and determine whether Medtronic plc (NYSE:MDT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Medtronic plc (NYSE:MDT) shareholders have witnessed an increase in hedge fund interest lately. Medtronic plc (NYSE:MDT) was in 65 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 66. Our calculations also showed that MDT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

To most traders, hedge funds are viewed as slow, old investment vehicles of years past. While there are more than 8000 funds trading at present, Our researchers choose to focus on the crème de la crème of this club, around 850 funds. These hedge fund managers manage the majority of the smart money's total asset base, and by keeping an eye on their finest investments, Insider Monkey has found various investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website.

Justin John Ferayorni - Tamarack Capital Management
Justin John Ferayorni - Tamarack Capital Management

Justin John Ferayorni of Tamarack Capital 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 best EV 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 we're going to take a peek at the latest hedge fund action encompassing Medtronic plc (NYSE:MDT).

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

At first quarter's end, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. By comparison, 59 hedge funds held shares or bullish call options in MDT a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Medtronic plc (NYSE:MDT) was held by Diamond Hill Capital, which reported holding $512.8 million worth of stock at the end of December. It was followed by D E Shaw with a $446.6 million position. Other investors bullish on the company included Citadel Investment Group, Fisher Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 7.27% of its 13F portfolio. Tri Locum Partners is also relatively very bullish on the stock, dishing out 7.02 percent of its 13F equity portfolio to MDT.

Now, key money managers were breaking ground themselves. Redmile Group, managed by Jeremy Green, created the largest position in Medtronic plc (NYSE:MDT). Redmile Group had $115.7 million invested in the company at the end of the quarter. Justin John Ferayorni's Tamarack Capital Management also made a $35.4 million investment in the stock during the quarter. The following funds were also among the new MDT investors: Frank Fu's CaaS Capital, Scott Bessent's Key Square Capital Management, and Greg Eisner's Engineers Gate Manager.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Medtronic plc (NYSE:MDT) but similarly valued. We will take a look at Novo Nordisk A/S (NYSE:NVO), Costco Wholesale Corporation (NASDAQ:COST), T-Mobile US, Inc. (NASDAQ:TMUS), Citigroup Inc. (NYSE:C), Royal Dutch Shell plc (NYSE:RDS), Honeywell International Inc. (NASDAQ:HON), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks' market caps are similar to MDT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVO,23,2929727,0 COST,56,4014769,-5 TMUS,98,9055738,-5 C,90,6938143,-5 RDS,36,2190186,2 HON,56,1731346,11 QCOM,73,2765985,-12 Average,61.7,4232271,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.7 hedge funds with bullish positions and the average amount invested in these stocks was $4232 million. That figure was $3628 million in MDT's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDT is 67.5. 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 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately MDT wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MDT were disappointed as the stock returned 9.4% since the end of March (through 8/6) 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.