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Where Do Hedge Funds Stand On Johnson & Johnson (JNJ)?

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  • JNJ

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Johnson & Johnson (NYSE:JNJ).

Hedge fund interest in Johnson & Johnson (NYSE:JNJ) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that JNJ ranked 26th among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare JNJ to other stocks including Alibaba Group Holding Limited (NYSE:BABA), Walmart Inc. (NYSE:WMT), and UnitedHealth Group Inc. (NYSE:UNH) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we're going to analyze the new hedge fund action surrounding Johnson & Johnson (NYSE:JNJ).

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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

At Q3's end, a total of 88 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2021. On the other hand, there were a total of 82 hedge funds with a bullish position in JNJ a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in Johnson & Johnson (NYSE:JNJ) was held by Fundsmith LLP, which reported holding $1163.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $856.7 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and AQR Capital Management. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Johnson & Johnson (NYSE:JNJ), around 9.78% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, earmarking 4.16 percent of its 13F equity portfolio to JNJ.

Due to the fact that Johnson & Johnson (NYSE:JNJ) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Donald Sussman's Paloma Partners cut the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $17.5 million in stock. Andrew Weiss's fund, Weiss Asset Management, also dumped its stock, about $16.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Johnson & Johnson (NYSE:JNJ) but similarly valued. These stocks are Alibaba Group Holding Limited (NYSE:BABA), Walmart Inc. (NYSE:WMT), UnitedHealth Group Inc. (NYSE:UNH), Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), Mastercard Incorporated (NYSE:MA), and The Procter & Gamble Company (NYSE:PG). All of these stocks' market caps are closest to JNJ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BABA,115,10201096,-31 WMT,71,7932562,0 UNH,95,11705313,-10 BAC,72,46487618,-15 HD,58,4380170,-6 MA,146,17659997,-10 PG,69,6414152,1 Average,89.4,14968701,-10.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 89.4 hedge funds with bullish positions and the average amount invested in these stocks was $14969 million. That figure was $6872 million in JNJ's case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 58 bullish hedge fund positions. Johnson & Johnson (NYSE:JNJ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for JNJ is 50.1. 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 negative signal and 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 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately JNJ wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); JNJ investors were disappointed as the stock returned -2.8% since the end of September (through 11/30) 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 most of these stocks already outperformed the market in 2021.

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