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 Hill-Rom Holdings, Inc. (NYSE:HRC).
Is HRC stock a buy? Money managers were taking a bearish view. The number of long hedge fund bets dropped by 6 lately. Hill-Rom Holdings, Inc. (NYSE:HRC) was in 28 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 34. Our calculations also showed that HRC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 percentage points since March 2017 (see the details here).
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind let's take a look at the fresh hedge fund action encompassing Hill-Rom Holdings, Inc. (NYSE:HRC).
Do Hedge Funds Think HRC Is A Good Stock To Buy Now?
At the end of December, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HRC over the last 22 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Hill-Rom Holdings, Inc. (NYSE:HRC), which was worth $85.1 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $71.1 million worth of shares. Arrowstreet Capital, Point72 Asset 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 Sio Capital allocated the biggest weight to Hill-Rom Holdings, Inc. (NYSE:HRC), around 2.47% of its 13F portfolio. Running Oak Capital is also relatively very bullish on the stock, dishing out 1.6 percent of its 13F equity portfolio to HRC.
Judging by the fact that Hill-Rom Holdings, Inc. (NYSE:HRC) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that slashed their entire stakes heading into Q1. Intriguingly, Steven Boyd's Armistice Capital said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $13.7 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also cut its stock, about $7.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 6 funds heading into Q1.
Let's also examine hedge fund activity in other stocks similar to Hill-Rom Holdings, Inc. (NYSE:HRC). These stocks are Kimco Realty Corp (NYSE:KIM), Cabot Oil & Gas Corporation (NYSE:COG), ADT Inc. (NYSE:ADT), JOYY Inc. (NASDAQ:YY), OneMain Holdings Inc (NYSE:OMF), ICL Group Ltd. (NYSE:ICL), and Federal Realty Investment Trust (NYSE:FRT). This group of stocks' market caps are closest to HRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KIM,22,216436,0 COG,19,94339,-6 ADT,24,281328,-6 YY,20,205802,-11 OMF,30,654934,-3 ICL,5,27624,0 FRT,17,60013,3 Average,19.6,220068,-3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $415 million in HRC's case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand ICL Group Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Hill-Rom Holdings, Inc. (NYSE:HRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HRC is 69.7. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on HRC as the stock returned 16.1% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.