How do you pick the next stock to invest in? One way would be to spend hours 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 Agnico Eagle Mines Limited (NYSE:AEM).
Is Agnico Eagle Mines Limited (NYSE:AEM) a buy here? Prominent investors are taking a bearish view. The number of bullish hedge fund bets retreated by 1 in recent months. Our calculations also showed that AEM isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Let's go over the new hedge fund action encompassing Agnico Eagle Mines Limited (NYSE:AEM).
What have hedge funds been doing with Agnico Eagle Mines Limited (NYSE:AEM)?
Heading into the second quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AEM over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Agnico Eagle Mines Limited (NYSE:AEM), which was worth $73.2 million at the end of the first quarter. On the second spot was Polar Capital which amassed $31.8 million worth of shares. Moreover, AQR Capital Management, McKinley Capital Management, and Paulson & Co were also bullish on Agnico Eagle Mines Limited (NYSE:AEM), allocating a large percentage of their portfolios to this stock.
Because Agnico Eagle Mines Limited (NYSE:AEM) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers who sold off their entire stakes in the third quarter. At the top of the heap, Peter Franklin Palmedo's Sun Valley Gold said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, comprising close to $11.8 million in stock. D. E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $9.9 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Agnico Eagle Mines Limited (NYSE:AEM) but similarly valued. These stocks are National Oilwell Varco, Inc. (NYSE:NOV), Ralph Lauren Corporation (NYSE:RL), Trimble Inc. (NASDAQ:TRMB), and Shaw Communications Inc (NYSE:SJR). This group of stocks' market caps match AEM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOV,18,732601,-4 RL,34,1434021,3 TRMB,14,572902,-3 SJR,12,275762,-2 Average,19.5,753822,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $754 million. That figure was $266 million in AEM's case. Ralph Lauren Corporation (NYSE:RL) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Agnico Eagle Mines Limited (NYSE:AEM) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately AEM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AEM were disappointed as the stock returned -3.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.