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In this article we will check out the progression of hedge fund sentiment towards Zoetis Inc (NYSE:ZTS) 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.
Is ZTS a good stock to buy now? Hedge fund interest in Zoetis Inc (NYSE:ZTS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ZTS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Stryker Corporation (NYSE:SYK), CVS Health Corporation (NYSE:CVS), and Morgan Stanley (NYSE:MS) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Ian Wace of Marshall Wace
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we're going to check out the new hedge fund action surrounding Zoetis Inc (NYSE:ZTS).
Hedge fund activity in Zoetis Inc (NYSE:ZTS)
At Q3's end, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, William von Mueffling's Cantillon Capital Management has the number one position in Zoetis Inc (NYSE:ZTS), worth close to $482.8 million, amounting to 4% of its total 13F portfolio. Coming in second is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $380.4 million position; 2.4% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism encompass Nicolai Tangen's Ako Capital, Barry Dargan's Intermede Investment Partners and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Intermede Investment Partners allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 5.98% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, dishing out 4.59 percent of its 13F equity portfolio to ZTS.
Seeing as Zoetis Inc (NYSE:ZTS) has witnessed declining sentiment from the smart money, we can see that there exists a select few fund managers that decided to sell off their full holdings last quarter. Intriguingly, Steve Cohen's Point72 Asset Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $22.4 million in stock, and David Steinberg and Eric Udoff's Marlowe Partners was right behind this move, as the fund sold off about $8.5 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. We will take a look at Stryker Corporation (NYSE:SYK), CVS Health Corporation (NYSE:CVS), Morgan Stanley (NYSE:MS), Canadian National Railway Company (NYSE:CNI), Rio Tinto Group (NYSE:RIO), Sea Limited (NYSE:SE), and Prologis Inc (NYSE:PLD). This group of stocks' market caps match ZTS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SYK,48,1718729,-2 CVS,61,1171666,-4 MS,70,4166963,9 CNI,26,2224542,-2 RIO,23,1276002,3 SE,95,7818359,13 PLD,33,518397,-2 Average,50.9,2699237,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.9 hedge funds with bullish positions and the average amount invested in these stocks was $2699 million. That figure was $2248 million in ZTS's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 23 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZTS is 58.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately ZTS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZTS were disappointed as the stock returned -3.8% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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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