Was The Smart Money Right About Piling Into Thermo Fisher Scientific (TMO)?
Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Thermo Fisher Scientific Inc. (NYSE:TMO)? The smart money sentiment can provide an answer to this question.
Thermo Fisher Scientific Inc. (NYSE:TMO) was in 89 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 80. This means the bullish number of hedge fund positions in this stock reached a brand new all time high. TMO has seen an increase in support from the world's most elite money managers lately. There were 80 hedge funds in our database with TMO holdings at the end of September. Our calculations also showed that TMO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Blood of Generation Investment Management
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. Now we're going to take a peek at the new hedge fund action regarding Thermo Fisher Scientific Inc. (NYSE:TMO).
Do Hedge Funds Think TMO Is A Good Stock To Buy Now?
At fourth quarter's end, a total of 89 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TMO over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Thermo Fisher Scientific Inc. (NYSE:TMO) was held by Fisher Asset Management, which reported holding $806.4 million worth of stock at the end of December. It was followed by Farallon Capital with a $519 million position. Other investors bullish on the company included Generation Investment Management, Cantillon Capital Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to Thermo Fisher Scientific Inc. (NYSE:TMO), around 10.87% of its 13F portfolio. Columbus Point is also relatively very bullish on the stock, dishing out 8.4 percent of its 13F equity portfolio to TMO.
As industrywide interest jumped, key hedge funds have jumped into Thermo Fisher Scientific Inc. (NYSE:TMO) headfirst. Castle Hook Partners, managed by Josh Donfeld and David Rogers, assembled the biggest position in Thermo Fisher Scientific Inc. (NYSE:TMO). Castle Hook Partners had $48.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $33 million investment in the stock during the quarter. The following funds were also among the new TMO investors: Rob Cope's Columbus Point, Donald Sussman's Paloma Partners, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Thermo Fisher Scientific Inc. (NYSE:TMO) but similarly valued. We will take a look at Broadcom Inc (NASDAQ:AVGO), Exxon Mobil Corporation (NYSE:XOM), Accenture Plc (NYSE:ACN), QUALCOMM, Incorporated (NASDAQ:QCOM), T-Mobile US, Inc. (NYSE:TMUS), Costco Wholesale Corporation (NASDAQ:COST), and BHP Group (NYSE:BHP). This group of stocks' market valuations resemble TMO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVGO,59,3342445,0 XOM,63,2208617,11 ACN,50,2133706,4 QCOM,85,2727547,-2 TMUS,103,9117019,9 COST,61,3613961,-12 BHP,20,1099946,2 Average,63,3463320,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 63 hedge funds with bullish positions and the average amount invested in these stocks was $3463 million. That figure was $5471 million in TMO's case. T-Mobile US, Inc. (NYSE:TMUS) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 20 bullish hedge fund positions. Thermo Fisher Scientific Inc. (NYSE:TMO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TMO is 81.6. 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 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 beat the market again by 0.9 percentage points. Unfortunately TMO wasn't nearly as popular as these 30 stocks and hedge funds that were betting on TMO were disappointed as the stock returned 4.8% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Get real-time email alerts: Follow Thermo Fisher Scientific Inc. (NYSE:TMO)
Disclosure: None. This article was originally published at Insider Monkey.
Follow Insider Monkey on Twitter
Related Content
