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 Alexander & Baldwin Inc (NYSE:ALEX).
Is Alexander & Baldwin Inc (NYSE:ALEX) a healthy stock for your portfolio? Hedge funds are in a bearish mood. The number of bullish hedge fund positions went down by 2 recently. Our calculations also showed that ALEX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's analyze the new hedge fund action surrounding Alexander & Baldwin Inc (NYSE:ALEX).
What does smart money think about Alexander & Baldwin Inc (NYSE:ALEX)?
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALEX over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Noam Gottesman's GLG Partners has the most valuable position in Alexander & Baldwin Inc (NYSE:ALEX), worth close to $13.3 million, corresponding to less than 0.1%% of its total 13F portfolio. On GLG Partners's heels is AQR Capital Management, managed by Cliff Asness, which holds a $2.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain Ken Griffin's Citadel Investment Group, Israel Englander's Millennium Management and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Alexander & Baldwin Inc (NYSE:ALEX), around 0.08% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to ALEX.
Because Alexander & Baldwin Inc (NYSE:ALEX) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that slashed their entire stakes by the end of the third quarter. It's worth mentioning that Matthew Tewksbury's Stevens Capital Management dumped the biggest investment of all the hedgies tracked by Insider Monkey, comprising close to $0.8 million in stock. Renaissance Technologies, also dropped its stock, about $0.6 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Alexander & Baldwin Inc (NYSE:ALEX) but similarly valued. These stocks are Mueller Water Products, Inc. (NYSE:MWA), PDC Energy Inc (NASDAQ:PDCE), Zogenix, Inc. (NASDAQ:ZGNX), and NGL Energy Partners LP (NYSE:NGL). This group of stocks' market values resemble ALEX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MWA,20,282575,2 PDCE,23,231814,9 ZGNX,34,834448,6 NGL,4,38721,0 Average,20.25,346890,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $20 million in ALEX's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Alexander & Baldwin Inc (NYSE:ALEX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ALEX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALEX investors were disappointed as the stock returned -10.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.