The Rise in Popularity of Goldman's Rising Star Stocks is the Most Significant Among Hedge Funds

The increasing favorability of hedge funds towards specific stocks can serve as a robust indicator of potential outperformance in the forthcoming period, and Goldman Sachs has undertaken an analysis to shed light on the current preferences of smart money investors.

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Goldman Sachs delved into the portfolios of 735 hedge funds, collectively managing $2.4 trillion in both long and short equity positions at the commencement of the fourth quarter. This analysis was based on regulatory filings. Subsequently, the bank identified a selection of Russell 1000 stocks that experienced the most significant surge in hedge fund ownership during the quarter.

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Historically, stocks identified as rising stars in this manner have demonstrated a tendency to outperform their sector counterparts in the subsequent quarters over the past two decades, as highlighted by Goldman Sachs. The names identified in the last quarter have indeed surpassed the performance of the broader Russell 1000 index in recent months, according to observations made by the bank.

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One notable case is Kenvue, the consumer health business that Johnson & Johnson recently spun off as an independent entity earlier this year. Goldman Sachs reported that a total of 48 hedge funds added Kenvue as a holding in the last quarter.

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Eli Lilly, propelled to the top of the rising star list, garnered significant attention from hedge funds due to the anticipation surrounding new anti-obesity medications. The recent approval by the Food and Drug Administration for Eli Lilly's tirzepatide drug for weight loss has further fueled optimism, opening the door for broader utilization of this blockbuster medication.

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Home Depot, a prominent home improvement retailer, also experienced considerable interest from hedge funds in the last quarter. The company recently reported fiscal third-quarter earnings and revenue that surpassed expectations.

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Hedge funds displayed heightened interest in two merger arbitrage opportunities during the last quarter—Splunk and Capri Holdings. Splunk's shares surged in September following the announcement of Cisco's intention to acquire the company for $157 per share in an all-cash deal, valuing the transaction at approximately $28 billion.

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Another noteworthy development involves Coach owner Tapestry's agreement in August to acquire Michael Kors and Jimmy Choo parent company Capri Holdings in an $8.5 billion deal. This move garnered attention from hedge funds as part of their strategic investments.

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Goldman Sachs' insights into hedge fund activities and their alignment with specific stocks provide valuable indicators for investors seeking potential outperformers in the current market landscape. As the financial landscape continues to evolve, monitoring the smart money's movements can offer strategic insights for investors navigating the complexities of the stock market.

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