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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 Adams Resources & Energy Inc (NYSE:AE).
Hedge fund interest in Adams Resources & Energy Inc (NYSE:AE) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AE 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 Geospace Technologies Corp (NASDAQ:GEOS), Limbach Holdings, Inc. (NASDAQ:LMB), and Gulfport Energy Corporation (NASDAQ:GPOR) 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Fred DiSanto of Ancora Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind we're going to go over the key hedge fund action regarding Adams Resources & Energy Inc (NYSE:AE).
What does smart money think about Adams Resources & Energy Inc (NYSE:AE)?
Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 5 hedge funds with a bullish position in AE a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Adams Resources & Energy Inc (NYSE:AE), with a stake worth $5.7 million reported as of the end of September. Trailing Renaissance Technologies was Ancora Advisors, which amassed a stake valued at $1.5 million. Minerva Advisors was 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 Minerva Advisors allocated the biggest weight to Adams Resources & Energy Inc (NYSE:AE), around 0.42% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to AE.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to Adams Resources & Energy Inc (NYSE:AE). We will take a look at Geospace Technologies Corp (NASDAQ:GEOS), Limbach Holdings, Inc. (NASDAQ:LMB), Gulfport Energy Corporation (NASDAQ:GPOR), RigNet Inc (NASDAQ:RNET), Marlin Business Services Corp. (NASDAQ:MRLN), X Financial (NYSE:XYF), and RYB Education, Inc. (NYSE:RYB). This group of stocks' market values match AE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GEOS,4,3395,-4 LMB,4,2446,3 GPOR,10,21369,-6 RNET,6,7476,0 MRLN,5,31525,1 XYF,3,318,1 RYB,3,5548,0 Average,5,10297,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $8 million in AE's case. Gulfport Energy Corporation (NASDAQ:GPOR) is the most popular stock in this table. On the other hand X Financial (NYSE:XYF) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Adams Resources & Energy Inc (NYSE:AE) is even less popular than XYF. Our overall hedge fund sentiment score for AE is 20. 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. Hedge funds clearly dropped the ball on AE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on AE as the stock returned 28.7% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.