Were Hedge Funds Right About Piling Into Johnson & Johnson (JNJ)?
In this article we will check out the progression of hedge fund sentiment towards Johnson & Johnson (NYSE:JNJ) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Johnson & Johnson (NYSE:JNJ) was in 94 hedge funds' portfolios at the end of June. The all time high for this statistics prior to the second quarter was 85. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. JNJ investors should be aware of an increase in support from the world's most elite money managers lately. There were 82 hedge funds in our database with JNJ positions at the end of the first quarter. Our calculations also showed that JNJ ranks 25th 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.
In the eyes of most market participants, hedge funds are viewed as unimportant, outdated investment vehicles of years past. While there are more than 8000 funds trading at present, We choose to focus on the top tier of this group, around 850 funds. These hedge fund managers have their hands on bulk of the smart money's total capital, and by paying attention to their best picks, Insider Monkey has discovered numerous investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Sander Gerber of Hudson Bay Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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 we're going to take a gander at the latest hedge fund action surrounding Johnson & Johnson (NYSE:JNJ).
How have hedgies been trading Johnson & Johnson (NYSE:JNJ)?
At second quarter's end, a total of 94 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 63 hedge funds with a bullish position in JNJ a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the largest position in Johnson & Johnson (NYSE:JNJ), worth close to $1.1091 billion, accounting for 2% of its total 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $735.5 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain D. E. Shaw's D E Shaw, Renaissance Technologies and Donald Yacktman's Yacktman Asset Management. In terms of the portfolio weights assigned to each position Lucas Capital Management allocated the biggest weight to Johnson & Johnson (NYSE:JNJ), around 5.92% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, designating 5.44 percent of its 13F equity portfolio to JNJ.
Now, key hedge funds have jumped into Johnson & Johnson (NYSE:JNJ) headfirst. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, created the biggest position in Johnson & Johnson (NYSE:JNJ). Woodline Partners had $58.9 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $32.5 million position during the quarter. The other funds with new positions in the stock are Sander Gerber's Hudson Bay Capital Management, Dmitry Balyasny's Balyasny Asset Management, and Zach Schreiber's Point State Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Johnson & Johnson (NYSE:JNJ) but similarly valued. We will take a look at Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), JPMorgan Chase & Co. (NYSE:JPM), UnitedHealth Group Inc. (NYSE:UNH), and The Home Depot, Inc. (NYSE:HD). This group of stocks' market caps resemble JNJ's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMT,60,5829223,5 MA,147,14350337,8 PG,73,9244143,-4 TSM,58,5209772,4 JPM,123,8732467,11 UNH,96,8326373,-8 HD,85,4642557,-2 Average,91.7,8047839,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 91.7 hedge funds with bullish positions and the average amount invested in these stocks was $8048 million. That figure was $4731 million in JNJ's case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 58 bullish hedge fund positions. Johnson & Johnson (NYSE:JNJ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JNJ is 60.2. 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 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately JNJ wasn't nearly as popular as these 10 stocks and hedge funds that were betting on JNJ were disappointed as the stock returned 6% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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