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Were Hedge Funds Right About Warming Up To Stryker Corporation (SYK)?

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Asma UL Husna
·6 min read
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In this article we are going to use hedge fund sentiment as a tool and determine whether Stryker Corporation (NYSE:SYK) 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.

Stryker Corporation (NYSE:SYK) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistics is 48. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. SYK has experienced an increase in enthusiasm from smart money recently. There were 48 hedge funds in our database with SYK holdings at the end of March. Our calculations also showed that SYK 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.

In the eyes of most traders, hedge funds are viewed as unimportant, old financial tools of years past. While there are greater than 8000 funds in operation at present, Our researchers hone in on the masters of this club, around 850 funds. These investment experts watch over bulk of all hedge funds' total asset base, and by shadowing their best investments, Insider Monkey has revealed various investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year 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 .

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

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. Keeping this in mind we're going to take a glance at the recent hedge fund action regarding Stryker Corporation (NYSE:SYK).

How are hedge funds trading Stryker Corporation (NYSE:SYK)?

Heading into the third quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in SYK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SYK A Good Stock To Buy?
Is SYK A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in Stryker Corporation (NYSE:SYK), which was worth $428.7 million at the end of the third quarter. On the second spot was BlueSpruce Investments which amassed $308.1 million worth of shares. Steadfast Capital Management, Adage Capital Management, and AQR Capital Management 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 BlueSpruce Investments allocated the biggest weight to Stryker Corporation (NYSE:SYK), around 8.9% of its 13F portfolio. Blue Whale Capital is also relatively very bullish on the stock, setting aside 6.06 percent of its 13F equity portfolio to SYK.

Consequently, specific money managers were breaking ground themselves. Steadfast Capital Management, managed by Robert Pitts, created the largest position in Stryker Corporation (NYSE:SYK). Steadfast Capital Management had $93.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $10.4 million investment in the stock during the quarter. The following funds were also among the new SYK investors: Seth Cogswell's Running Oak Capital, Brandon Haley's Holocene Advisors, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Stryker Corporation (NYSE:SYK) but similarly valued. These stocks are Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), Fiserv, Inc. (NASDAQ:FISV), Booking Holdings Inc. (NASDAQ:BKNG), Zoetis Inc (NYSE:ZTS), VMware, Inc. (NYSE:VMW), and Automatic Data Processing, Inc. (NASDAQ:ADP). This group of stocks' market caps are similar to SYK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ISRG,43,1094503,-7 ANTM,69,4103137,-1 FISV,85,4642685,18 BKNG,96,6098595,6 ZTS,58,1985007,-2 VMW,42,696435,15 ADP,49,1802478,3 Average,63.1,2917549,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.1 hedge funds with bullish positions and the average amount invested in these stocks was $2918 million. That figure was $1257 million in SYK's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 42 bullish hedge fund positions. Stryker Corporation (NYSE:SYK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SYK is 44.4. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on SYK as the stock returned 23.5% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.

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

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