While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding FleetCor Technologies, Inc. (NYSE:FLT) and see how the stock performed in comparison to hedge funds' consensus picks.
Is FleetCor Technologies, Inc. (NYSE:FLT) the right pick for your portfolio? Hedge funds are in an optimistic mood. The number of bullish hedge fund bets moved up by 2 recently. Our calculations also showed that FLT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). FLT was in 42 hedge funds' portfolios at the end of September. There were 40 hedge funds in our database with FLT holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's go over the fresh hedge fund action regarding FleetCor Technologies, Inc. (NYSE:FLT).
What have hedge funds been doing with FleetCor Technologies, Inc. (NYSE:FLT)?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FLT over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chase Coleman's Tiger Global Management has the most valuable position in FleetCor Technologies, Inc. (NYSE:FLT), worth close to $495.3 million, corresponding to 2.6% of its total 13F portfolio. Sitting at the No. 2 spot is Robert Pitts of Steadfast Capital Management, with a $309.4 million position; 4.2% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish comprise Gabriel Plotkin's Melvin Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Andrew Immerman and Jeremy Schiffman's Palestra Capital Management. In terms of the portfolio weights assigned to each position Atalan Capital allocated the biggest weight to FleetCor Technologies, Inc. (NYSE:FLT), around 11.34% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, earmarking 8.87 percent of its 13F equity portfolio to FLT.
As industrywide interest jumped, specific money managers have jumped into FleetCor Technologies, Inc. (NYSE:FLT) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, created the largest position in FleetCor Technologies, Inc. (NYSE:FLT). Melvin Capital Management had $257.3 million invested in the company at the end of the quarter. Gabriel Plotkin's Melvin Capital Management also made a $74.6 million investment in the stock during the quarter. The other funds with brand new FLT positions are Lee Ainslie's Maverick Capital, Jacob Doft's Highline Capital Management, and Philippe Laffont's Coatue Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as FleetCor Technologies, Inc. (NYSE:FLT) but similarly valued. We will take a look at Realty Income Corporation (NYSE:O), DTE Energy Company (NYSE:DTE), Waste Connections, Inc. (NYSE:WCN), and PACCAR Inc (NASDAQ:PCAR). All of these stocks' market caps match FLT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position O,16,177826,-6 DTE,20,678909,-8 WCN,29,575449,3 PCAR,25,193757,-2 Average,22.5,406485,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $406 million. That figure was $2138 million in FLT's case. Waste Connections, Inc. (NYSE:WCN) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks FleetCor Technologies, Inc. (NYSE:FLT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on FLT as the stock returned 53.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.